To BEE or not to BEE

Who could have imagined that the heading of this article (varied, of course), taken from English literature would find such prominence in South Africa's strive for equality amongst its citizens? The process of black economic empowerment in our country remains the subject of widespread and lively debate. This debate is now hotting up within the legal industry and many law firms are beginning to sit up and take notice.

Broad-based black economic empowerment (BBBEE) is but one project of an array of interventions brought by government to redress the socio-economic legacy of apartheid. It aims to ensure entry of the previously disadvantaged community in our society into South Africa's mainstream economy and, as such, BBBEE will touch on each and every one of our legal practices. Strategically and from a marketing perspective, the question is how, if at all, will BBBEE impact on your practice in time to come?


Strategy is the name of the game
With a quick glance at the Act (Act 53 of 2003), passed into law on 6 January 2004, you will realize that the simple answer is, "yes", your practice will need to comply with BBBEE even if your firm does not intend to tender or work for government functionaries. The reason for this is found in an analysis of the Act and Codes in which the true driver of BBBEE is that it has a cascade effect starting at government level and filtering down to the level of general business-to-business suppliers and providers of services. When contracting with each other or providing a service (other than with individuals), your practice will, at some time, need to verify its BEE compliance status; alternatively, to request such status from your service provider to ensure that your firm can score certain points allocated within the general scorecard in order to maintain or improve its BEE status and/or procurement level.

This key driver is found at the Procurement Level of the scorecard. To explain the import, most firms would have some form of work being received from financial institutions such as bond registrations, foreclosures, insurance work, forensics, etc. The Financial Charter, as an example, requires of such financial institutions to promote the spirit of BEE by allocating work to its service providers (i.e. law firms) based on their BEE status and procurement level. In turn, the financial institutions themselves are measured by government on their BEE status which has a direct bearing to the status and measured procurement levels of their service providers. The key driver acts as a form of surety for the process: in order to keep your BEE status and procurement level, each of us will need to contract with like-minded BEE compliant companies.

A failure to be compliant will, inevitably, result in a loss of custom as the client or service provider would seek out other BEE compliant companies against which its future status and procurement levels can be guaranteed or entrenched.

Beware the wolf in sheep's clothing
In the early days of BEE, some firms sought to prove their commitment to the BEE strategy and market their new status by structuring the practice ownership and management participation to give nominal control to black partners. Outwardly, this was advertised by a change of name to introduce an African spin to the firm's name. While the narrow approach to BEE may have previously accepted this strategy, the Act has been amended, as has the codes, to create a more robust BEE strategy platform. Ownership and Management are but one level of several that is considered to determine the BEE status and procurement level of a business. Within this new broad approach, and measured against the BEE scorecard, companies who have created a form of window dressing will be seen to be fronting and run the risk of being "red flagged". If this happens, the verification agencies that will be responsible for issuing your yearly verification certificate will be empowered to adversely endorse or revoke your certificate. If this happens, the potential results are not only a loss of work from other BEE compliant clients/ work providers, but also possible damage to the brand you have built.

Beware of looking for the shortcut in pursuing your BEE strategy. The risk of fronting is not only detrimental to your future flow of work, but clients will perceive your brand negatively and question your reasons for attempting such a strategy in the first place.

What's in a name?
It amazes me the number of law firms that have embarked on a change of name strategy to showcase their "new" BEE status by introducing an African name without truly giving effect to BBBEE. Personally, I find this in poor taste and a proverbial slap in the face to the incumbent previously disadvantaged partner as such name change is not in the spirit or in accordance with the Act and codes. It is tantamount to a visual acknowledgement of fronting. More absurdly, such a strategy flies in the face of logic when building your brand. You don't just change your name at the drop of a hat!!! Such a strategy shows desperation and a clear sign that the partners have not thought through the implications to their practice and clients. Clients don't like change and any immediate change without a communication strategy could backfire on the firm and dilute the value of the brand.

A name change of any nature must be treated with sensitivity and must be clearly communicated. In the spirit of BBBEE, a change of name reflecting a new "status" incorporating previously disadvantaged partners and/or management, must be done in light of an unwavering commitment to BBBEE which will stand the test of verification compliance. A failure to adopt such a strategy will hurt the brand and relate negative perceptions of the name to your clients and future prospects. Many people will begin to hear and learn of "fronting" through the media and the last thing you want is for your practice to be negatively associated with this or run the risk of your verification certificate to be "red flagged".

BBBEE and marketing
I know that any change is difficult and costly and I know that BBBEE is a hot potato amongst practitioners. The debate around the issue is not final and I am sure it will gather momentum when we begin the process of drafting our Sectoral Charter or when we experience the pressure to be compliant from our clients or contemporaries. Whatever will come, I do know that BBBEE offers us all unique marketing opportunities to promote our practice. As an example, the general scorecard provides for a social responsibility program to be funded from net profit without any conditions attached to such program. The aim of the social responsibility program is to give back to underprivileged communities. There will no doubt be a lobby group to bemoan the cost of such program from net profit which has no potential pre-tax benefit and many will not want to see the potential marketing opportunity in the face of such a perceived and grim injustice. As a marketing spin, the firm could embrace the program and seek innovative ways to leverage some good publicity for the firm. The mere fact that the Act and code provides for such a program and qualifies how it should be funded, doesn't mean you can't market some leverage off of it. You have just got to think laterally.

BEE is not the final word
BEE is a business imperative which is now upon us. That being the case, BEE should be an immediate strategy we all embark upon and all become involved in to secure the future of our firms and the future potential workflow that we will retain or secure from such BEE strategy. Strategies should not be focused solely on ownership and management, but on areas of procurement, skills development and social responsibility. There will no doubt be pain, but that is usual for any formal change…the test is, however, how we deal with change.
Think about it.

Sean Bosse is an admitted and practicing attorney with Herold Gie Attorneys in Cape Town. Sean has a strong passion for what he calls "The Business of Law" and the marketing of law firms. Sean is a regular contributor of strategy and marketing articles for GhostDigest as well as for a UK legal publication. Prior to returning to practice, Sean completed an MBA and worked as a strategic business manager for an international Internet service provider. Please feel free to mail him using sbosse@heroldgie.co.za