Page 6 - Transformation Report 2018/2019
P. 6



                         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.
                             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

          Group Transformation Report for 2018/19
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