The Enron debacle and the King 2 report have brought to the boil a hot issue in SA's corporate law firms: the challenge by the big accountancy practices to capture their traditional - and most lucrative - commercial legal work.
One-time pure accounting and auditing firm Deloitte & Touche, which employs or is associated with several thousand lawyers through its global network, has built up a team of 30 admitted attorneys in SA who specialise in corporate and commercial law. And it intends to increase the number.
Lawyers working for or associated with these "professional services firms", as they are now known, are a contentious topic, particularly in an era of emphasis on corporate governance and conflicts of interest.
It's also contentious because in the end it's all about money. Commercial law firms are forever on the prowl for large corporate transactions that will generate a great deal of fee income for a team of attorneys, often working for months. A 2 000-hour job can haul in fees of around R3,5m.
With lawyers, billing is the name of the game . Young graduates coming into a law firm as non-admitted candidate attorneys earning R7 000/month bill R300/hour, even though they may only be doing the photocopying. That's the same as an experienced GP charges for private medical consultations.
Once they are admitted as professional assistants, the billing rate doubles to about R600/hour; then doubles again to about R1 200 with associate status. Partners edge through the R2 000/hour barrier and a senior partner's hourly billing rate hovers around R2 400.
Partners in a large corporate law practice are each expected to bill between R1m and R3m/year, depending on expertise, experience and seniority. To achieve this they put in a 14-hour working day - and are expected to bill for at least eight of them.
Budgets are set and the pressure's always on. How large a partner's slice of profits is at the end-of-year share-out depends largely on how much the legal eagle has scooped in fee income.
So when the Big Five (now Four with Andersen out of the picture) professional services practices moved in on the preserve of the corporate lawyer, there was a predictable panic.
The accountancy/law combines are called multidisciplinary practices (MDPs) and they're strongest in continental Europe. In France the three largest-by-size legal firms are all accountancy-associated practices. The biggest is KPMG's Fidal (1 200 lawyers), followed by Andersen Legal (378 lawyers) and PricewaterhouseCoopers' Landwell (360 lawyers). Lawyers in these firms typically bill US250-300/hour, more than a senior partner's rate in most top SA law firms.
Deloitte & Touche Legal started up in SA four years ago. "We're a growing department and what we're doing is novel," says business unit leader Murray Dicks. "We're creating a legal business within what is traditionally an alien environment.
"The professions (law and accounting) are so different and have been so separate for the past 100 years. Their systems and management practices are very different."
On the intention to expand the legal team, Dicks, previously a practising attorney and partner in a Pretoria law firm, says: "We have not even scratched the surface of the legal work here."
Deloitte is the largest MDP in SA. The lawyers work in an entity called Deloitte & Touche Legal, within the parent firm. Half a dozen of the attorneys, including Dicks, are partners. Well, almost.
"A lawyer can't be a partner in an auditing partnership," Dicks explains. "But we're called partners and in all respects are treated as such."
The Deloitte lawyers are all admitted attorneys who subscribe to the Attorneys Act and their professional code of ethics. Almost half of the 30 work on corporate and commercial law: mergers and acquisitions, drafting agreements, and giving advice on corporate structuring .
Seven are labour lawyers. There's an IT team, led by Wim Mostert, which recently helped draft the e-commerce legislation for government. One lawyer works on environmental law.
Dicks says Deloitte Legal bills about the same as traditional law firms for its services, though the move is away from hourly billing to quoting on individual assignments and monthly retainers.
A decreasing amount of Deloitte's total fee income is from the core activity, auditing. Dicks describes the practice now as a professional services business covering tax, corporate finance and law. "A one-stop shop."
As far as the Law Society of SA goes, the Deloitte lawyers are all nonpractising attorneys. They don't appear in court, not even the Labour Court. They can't do restricted legal work like litigation and conveyancing.
"We would like to be regulated within the legal profession and we've made that appeal to the Law Society ," says Dicks. "We'd like to be practising attorneys within an MDP."
He says there's a lot of interest from young lawyers in working in an MDP. "We get about 150 unsolicited CVs every quarter. There are a lot of unhappy PA/associate level lawyers in legal practices in SA, because the law firms are often so traditional.
"The approach here is different. We use technology a lot more than most law firms do. Every lawyer who arrives here gets a laptop computer. And we spend a lot more money on our people. In a law firm the partners typically don't plough profits back into the firm; they put it in their pockets."
The half-dozen lawyers who are de facto partners at Deloitte are all on equity status. The nonpartner ones are salaried; an attorney with four to five years' experience post-admission could be on R500 000/year.
Why did they move from their respective law firms? "Mostly because of that conservative traditional approach firms have," says Dicks. "Everything the partners do is closeted behind secret doors: what they earn, all that sort of stuff. Some of the larger firms are coming around to a modern way of managing their businesses. But traditionally partners, though often brilliant delivery people, are also often shocking business people. They're not good managers.
"The auditors have been better at that. That's why they have grown so much larger than the traditional law firms."
As for fears about independence and conflicts of interest, Dicks says: "These issues arise rarely, and when they do they are easily managed. We have a whole department that just manages risk. We have clear guidelines and don't get involved in any situation where there's a potential conflict."
And the vital question of privilege? "We believe that privilege still attaches to us, because we're attorneys. If we were subpoenaed to produce files we would say we're attorneys covered by privilege' - and refuse.
"But we're not involved in disputes and that's where the majority of those sorts of conflict arise. We're involved in putting deals together, growing businesses and advising clients on corporate legal issues. We don't do criminal work and areas where witnesses get subpoenaed."
So what do the law firms say of this threat to their preserve? "My objection is twofold: conflicts of interest and privilege," says Ed Southey, senior partner of Webber Wentzel Bowens. "Privilege is the right of the client not to have anything he says to his attorney disclosed, under any circumstances. I may not disclose it. It's a basic human right that goes back centuries.
"What do you do when you tell an MDP? If an accountant is in a room with a lawyer and a client, is it privileged? What you tell an accountant is confidential but not privileged. He has an obligation to act, to blow the whistle.
"Everyone thinks they can run someone else's business," Southey says. "There's now a move away from conglomerates, here and overseas. People are focusing on what they do best. Why go back to being a conglomerate?
"Conflicts of interest are an important issue. When you have a conflict you cannot give advice that is untrammelled by your other interests. Accountancy and auditing has become a high-risk profession. You ought to be a bit careful about being a partner in an auditing firm now. The claims are so huge.
"These MDPs say: We'll be doing all these deals under one roof. We'll have an accountant or auditor here, a lawyer there, a tax adviser, a corporate finance expert.' All from the same firm, together. Which is superficially attractive, but therein lies a real risk that the client for whom you're putting all those people together is not getting independent advice."
Of the post-Enron climate, Michael Judin, senior partner of Goldman Judin Maisels, says: "One of the big issues in Enron is that Andersen was performing consulting work as well as auditing. So after Enron we've got a new big issue on the table: conflict. It's always been an issue, but it's really on the radar screen now. I believe companies will be loath, given conflict of interest issues, to have their auditors perform the accounting and auditing function and the legal function."
Apart from the Chinese walls that some accountancy firms set up to separate their legal departments from the auditing business, there are alliances.
One such local alliance was formed in mid-2001 by corporate law firm Jowell Glyn & Marais and accountants Ernst & Young. Jowell Glyn specialises in commercial law and is strong on banking, corporate finance and mergers & acquisitions.
"When Ernst & Young approached us we thought there would be a lot of synergy between the two firms," says Jowell Glyn senior partner Richard Glyn. "Ernst & Young has a huge client base in SA and we would be able to supply the legal skills they wouldn't always have internally.
"It seemed an ideal opportunity for us. The other attraction was that because it's only an alliance we maintain our independence, so we comply with all the Law Society requirements.
"As an independent firm," says Glyn, "we can take views on conflicts; we can take views on professional advice. It's not as if somebody's paying my salary at the end of the month. We've kept our independence, but have the opportunity of working with people we respect on interesting and challenging projects.
"Ernst & Young is not tied down to using us - it can use other legal firms if its clients want to. And likewise we're not tied to it."
Ernst & Young partner Jeremy Grist says the firm has only "a couple" of in-house lawyers, working in the forensics group and on clients' business in the tax practice.
Of the alliance, he says: "There are easily a couple of dozen clients in it. It's good in that we've each got our own client bases, so we're independent of one another, but we've created interdependencies. We look for synergies where we can enhance one another's service offerings to our respective clients. We cross-refer.
"And because we're independent we can have differing opinions, which improves the rigour of the services we can supply to a mutual client."
King 2 has put the onus on companies' audit committees when it comes to the breadth of services they allow their accountants and auditors to provide. Says Grist: "I think a lot of audit committees will now start erring on the side of caution. We're taking the view that there are definitely elements of our services which we cannot provide to an audit client. Valuations are the kind of thing where we need to be circumspect."
A couple of years ago attorneys Bell Dewar & Hall considered merging with PricewaterhouseCoopers. "It would have been on a joint-venture basis, bearing in mind that our professional independence would have been retained ," says Bell Dewar senior partner Duncan Sinclair.
The perception at the time was that clients wanted to complement the services offered by law firms. "It would seem that professional independence is now regarded as of paramount importance and the trend towards MDPs may drop off," says Sinclair.
Had the merger come off, Bell Dewar would have become part of PWC's global law firm, Landwell. "At one stage the American Bar Association was talking about supporting MDPs in the US. Then that changed," says PWC tax and legal partner Paul de Chalain.
Many attorneys working in big accountancy firms believe the Law Society disapproves of MDPs. So it's something of a surprise to hear that the Law Society of SA in fact approves of one-stop shops.
"We've been drafting the new Legal Practice Bill and in our submission to the task team we've declared ourselves in favour of MDPs," says Law Society executive director Andre van Vuuren. "However, issues such as client confidentiality are still not resolved and the Minister must ask the Law Commission to investigate it properly."