Page 6 - Transformation Report 2018/2019

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2. MOVING T OWARDS BLACK-OWNED LAW FIRMS

The BEE Codes The bulk of South African law firms are in the small to medium-size
incentivise bracket and have annual turnovers of less than R50 million per year.
law firms The majority of member firms also fall in this bracket and reflects the
to become general spread of South African firms.
black-owned
and forego From a BEE compliance perspective, many of these firms are seen
annual BEE as Qualifying Small Enterprises (QSE) as determined by the Generic
verification BEE Codes of Good Practice (BEE Codes). The BEE Codes essentially
while designate a QSE as any enterprise falling under the BEE Codes with
achieving an annual turnover of between R10 and R50 million. Given that
high BEE there is no legal BEE charter or code which applies to law firms, law
levels firms generally fall under these BEE Codes and have to comply with
the QSE Scorecard set out in the BEE Codes.

Compliance with the QSE Scorecard requires comprehensive
annual BEE verification and proper and continuing BEE planning on
an annual basis across all elements of the QSE Scorecard. To meet
set scorecard targets, compliance also often requires substantial
financial expenditure on the various elements and sub-elements.
With the substantial reduction of available BEE verification agencies
that can undertake verifications and lead times often as long as
three months until a BEE verification certificate can be issued, BEE
compliance is a complex and expensive exercise for law firms.

An incentive established by the BEE Codes for enterprises to be black-
owned (have more than 50% black ownership), is the opportunity
to be exempted from undergoing annual BEE verification and
having to meet the targets of the QSE Scorecard. In addition to
being exempted, automatic BEE recognition levels, namely a Level
2 automatic rating for being more than 50% black-owned and a
Level 1 automatic rating for being 100% black-owned, are granted.
These are the top levels that can be achieved, and would require
substantial planning and financial investment to achieve through
normal BEE verification.

The raison d’être for creating automatic recognition levels is most
certainly to incentivise and reward enterprises that have transformed
and become black-owned. Having achieved these levels of
ownership, such an enterprise can itself confirm its automatic
recognition level and ownership through a standard affidavit, and
so benefit from a top BEE level as well as not having to undergo
scorecard verification. Importantly, this incentive does not apply
to enterprises with an annual turnover above R50 million (Generic
enterprises).

Group Transformation Report for 2018/19