Lawyers at leading South African commercial law firm Edward Nathan bought the business back from its parent bank in the same month that Sir David Clementi recommended allowing outside ownership of legal practices in the UK, it has emerged.

The 47 directors of Edward Nathan paid owner Nedcor R50 million (£4.5 million) last month for the business, which the bank acquired in 1999 for £40 million. The sale will see Nedcor nurse an estimated R20 million loss in 2004 as a result of its foray into the law, and marks a return to focusing on its core banking activities.


Edward Nathan chief executive Coenraad Jonker said the Johannesburg-based firm had been hit by a combination of the boom in South African stockmarket listings in the late 1990s turning into a bear market, and the negative effect of corporate scandals such as Enron on the appeal of the one-stop shop offering for legal and financial advice.


Mr Jonker said: 'It hurt our brand that we were perceived as part of the banking group.'


That damage to the brand - and the need to create black empowerment within the business as well as to provide appropriate rewards for top earners - were the drivers behind buying the business back, he said.


Mr Jonker insisted that being owned by non-lawyers nevertheless had 'very interesting and sometimes unexpected benefits', including the change of culture from running the firm on partnership lines to a corporate model.


The business will continue to be run as a company following the sale, with lawyers paid by salaries and bonuses, and there are no plans to return to a partnership structure.


'With the benefit of hindsight, the deal was only partially successful,' Mr Jonker admitted.


The original deal had benefits for Nedcor, he maintained, pointing to the bank's rise from fifth place in the corporate advisory league tables by number of deals to the top spot between 1999 to 2004. 'From the point of view of creating a sustainable integrated advisory model, however, it was not successful.'


In his report published last month, Sir David proposed that non-lawyers should be able to own legal practices in the UK - subject to a 'fit to own' test and rules preventing interference (see [2004] Gazette, 17 December, 1).


Mr Jonker said such a structure was more likely to be successful for legal practices engaged in areas such as bulk conveyancing or debt collection, rather than at the top end of the market where lawyers' earning expectations would conflict with shareholders' demands for a return on their investment.


The possibility of outside ownership of legal practices has been welcomed by the Law Society but received an angry response from the Bar Council. In an interview with the Gazette published this week, new bar chairman Guy Mansfield QC warned that regulating outside ownership would be extremely complex.


For the full interview, see here