Dark clouds gather for law firms in South Africa

 ·14 Jan 2025

The South African government’s new Broad-Based Black Economic Empowerment (BBBEE) targets for the legal sector have sparked controversy, with prominent law firm Norton Rose Fulbright leading a legal challenge against the measures.

The government’s policy, introduced last year, aims to accelerate transformation in a sector long criticized for its lack of diversity.

However, the ambitious new requirements have raised concerns about their practicality and potential consequences.

The BBBEE legal sector code, championed by Trade, Industry, and Competition Minister Parks Tau, seeks to level the playing field for black practitioners by mandating substantial changes in ownership, management control, and procurement practices.

The new targets include achieving 30% to 50% black ownership and management control in law firms and sourcing 40% to 60% of legal services from black advocates.

These measures replace the generic BBBEE code previously applied to the sector and are designed to address systemic barriers faced by black lawyers, such as discriminatory briefing patterns and limited access to senior roles.

While the government sees the policy as a critical step toward inclusivity, Norton Rose Fulbright’s South African unit argues that the targets are “unreasonable, impractical, and unrealistic.”

According to Brent Botha, a director at the firm, the requirements impose severe operational and financial challenges, reported BusinessDay.

Brent Botha, CEO of Norton Rose Fulbright South Africa.

“The legal sector code fundamentally alters how ownership, management control, enterprise development, and skills development are measured,” said Botha.

He warned that compliance would jeopardise the firm’s BBBEE contributor status, potentially reducing it from a Level 1 (135%) to Level 6 (60%) contributor by April 2025.

This downgrade could severely affect the firm’s ability to attract local clients and secure state contracts.

Norton Rose Fulbright’s legal challenge is twofold: an urgent interim order to suspend the code’s implementation and a broader application to have the policy declared unlawful and unconstitutional.

Botha noted that the firm supports transformation in principle but views the legal sector code as a flawed approach.

He described some of the new requirements as “counter-transformative,” highlighting issues such as higher targets for black ownership (rising to 50% within five years) and the exclusive focus on black practitioners, excluding other staff essential to a law firm’s operations.

The firm also criticised requirements for ownership representation by black youth under 35, black people with disabilities, and individuals from rural areas.

Botha said that achieving equity partnerships for such groups is exceedingly rare in urban-centric law firms, making compliance nearly impossible.

Additionally, the firm faces financial strain from procurement adjustments, with approximately R30 million in vendor spending rendered non-compliant under the new code.

Adding another layer to the transformation debate, Minister Tau announced a plan to raise R100 billion from the private sector to fund black-owned businesses through the National Empowerment Fund’s Transformation Fund.

This initiative, financed through BBBEE codes and public interest requirements in competition law, aims to address economic barriers faced by black entrepreneurs.

Critics, however, have expressed scepticism, warning that the fund could become a financial black hole.

DA trade spokesperson Toby Chance accused the government of expropriating private sector resources, questioning the National Empowerment Fund’s capacity to manage the initiative effectively.

The clash over the legal sector code underscores the broader tensions in South Africa’s transformation agenda.

While the government insists that the measures are crucial for addressing historical injustices, Norton Rose Fulbright warns of significant risks to the legal industry’s stability and viability.

As the high court prepares to hear arguments, the outcome could set a precedent for how far the state can go in driving transformation in professional sectors.

Whether the new targets will achieve their intended purpose or exacerbate existing challenges remains to be seen.


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