Paul Janisch

Two BEE related cases. DimDat and Norton Rose

For the uninitiated DimDat was a slightly derogatory name for Dimenson Data.  I worked for them so many years ago, many memories have faded but the nickname has not.  DimDat was the darling of the JSE in the late 90s.  It even made it into the FTSE 100.  It had a certain culture that I found very predictable.  There is a recognition that the main people (similar to the list of people being sued) weren't that likeable.  There was an arrogance there.  That was more than 20 years ago, I can't comment now.

They have appealed their judgement and claimed

"The BEE structure was fully compliant with all BEE rules and was sanctioned by [law firms] Eversheds and Webber Wentzel acting for NTT, and Webber Wentzel acting for the empowerment entity," the former directors said in a statement on Wednesday.

"There is compelling evidence that NTT elected to abide by the transaction which had achieved the BEE result NTT sought and that it in fact relied on and benefitted from the transaction."

This is good news.  As I wrote before

The six gentlemen in question have a lot of money.  A hell of a lot of money.  But then so does NTT (the shareholder of DimDat).   The pyscho six are going to appeal and it will end up in the Constitutional Court at some stage – read in MANY years’ time.  It must go to the constitutional court because it is the best case of fronting that I have seen.  Thus far there has only been one case and that dealt with the big trains at PRASA.   This will absolutely test the mettle of empowerment legislation.  Fronting is fraud and hence the conditions for fraud need to be proved.  But the Constitutional Court might give us some objective test for fronting and may even be forced to consider the constitutionality of BEE altogether.  

This is a great segue into the Norton Rose BEE action.  News24 wrote an article yesterday about this landmark case.  I don't like the heading

Top law firm backs down on new BEE code interdict - but the fight isn't over

Norton Rose Fulbright SA (NRFSA) has dropped its bid to suspend the operation of a new legal sector code that came into effect in September.  But the top law firm has not dropped its opposition to the code, saying it remains "unconstitutional", "unimplementable", and "will not achieve the very objectives it seeks to achieve" in its current form. But following a case management meeting on Tuesday, it said it had agreed to a proposal put forward by the Ministry of Trade, Industry and Competition not to try to interdict the code.  In return, it hopes to be able to argue the merits of its application at a sooner date.

Norton Rose didn't back down, the DTIC struck an interim deal with them.  This is a case of who blinked first and the government blinked.  We can speculate but I don't think we are far off the mark in assuming that the DTIC knew they had no leg here.  I was told, as a demonstration of how clueless their legal team is, that their attorney maintained that the sentence announcing the arrival of the legal codes doesn't mean that it's retrospective in application.   The attorney's correct but it shows a clear lack of understanding of the practicalities of the BEE process.  Parks and Recreation wrote 

(I) hereby publish the Legal Sector Code and determine that these Codes will come into effect on the date of this publication.

Norton Rose's financial year is Jan to December.  The Legal Code came into effect on the 20th of September 2024.  Norton Rose went to great pains to explain that they had spent a lot of money on things that the generic codes are happy with which then amounts to nought in the new codes.  They explained that they would have three months to make up everything they need to do (additional expense required and advocate briefed inter alia) to do anything on the scorecard.  However they can't go back and start the BEE period from the 1st of September 2023 to end 31 August 2024, because they've been verified already on those 2023 months. And they can't wait until 30 September this year to finish a year because their certificate expires in April 2025.  The next BEE scorecard would be issued in late November 2025.

It's a small thing that it shows how badly beaten up the DTIC will be.  They blinked first and it's very likely that they will lose.  We now don't have to wait for two years for a case, we can expect this to go to court in June this year.

Additional Benefits of the INTRATERNSHIP Programme

Introduction

The modern corporate landscape is continually evolving, and with it, the need for robust training and skill transfer mechanisms has never been more critical. The INTRATERNSHIP programme is one such initiative designed to foster a culture of peer learning, skills transfer, and internal mentorship within organizations. This document explores the myriad benefits of the INTRATERNSHIP programme and how it can revolutionize the way companies nurture and retain talent.

Peer Learning and Skills Transfer

One of the core tenets of the INTRATERNSHIP programme is the emphasis on peer learning. By enabling employees to learn from each other, organizations can facilitate a steady flow of knowledge and expertise across all levels. This method of learning ensures that the skills and insights are not siloed within specific departments or individuals but are disseminated throughout the organization.

This approach has several advantages:

• Enhanced Collaboration: Peer learning fosters a collaborative work environment where employees are encouraged to share their knowledge and experiences. This collaborative spirit can lead to innovative solutions and a more cohesive team dynamic.
• Steady Skills Transfer: By formalizing the process of skills transfer, organizations can ensure that critical knowledge is passed on systematically. This reduces the dependency on individual employees and mitigates the risk of losing essential skills when key personnel leave.
• Empowerment and Recognition: Employees who become trainers in their own right are empowered and recognized as experts in their field. This recognition can boost their morale and motivation, leading to increased job satisfaction and retention.

Creating Continuity and Reducing Risk

A significant benefit of the INTRATERNSHIP programme is the creation of continuity within the organization. By spreading expertise across multiple employees, the company can ensure that there is a buffer against the loss of corporate memory and critical skills. This continuity is crucial for maintaining business operations during times of disruption.

Mitigating Risk

The INTRATERNSHIP programme helps in mitigating various risks associated with knowledge loss and employee turnover:

• Corporate Memory: The risk of losing corporate memory is a significant concern for many organizations. By ensuring that multiple employees are trained in essential functions, the company can safeguard against this risk.
• Business Continuity: In the event of a disruption, stakeholders can take comfort in knowing that the company has a robust plan for maintaining operations. The INTRATERNSHIP programme provides a safety net that ensures critical skills are retained within the organization.

Informal Qualifications and Industry Standards

Another advantage of the INTRATERNSHIP programme is the creation of informal qualifications for the industry. By putting staff through an internal internship and issuing certificates co-signed by the client and the company, organizations can establish themselves as industry leaders.

Setting the Standard

One of our clients has embraced the INTRATERNSHIP programme to position themselves as the industry standard. This initiative has several benefits:

• Industry Recognition: By creating internal internships and issuing certificates, the client can differentiate themselves in the market. This recognition can enhance their reputation and attract top talent.
• Employee Validation: Employees who complete the INTRATERNSHIP programme receive validation of their skills and expertise. This certification can be a valuable addition to their professional portfolio, enhancing their employability and career prospects.

Conclusion

The INTRATERNSHIP programme offers a comprehensive approach to fostering a culture of learning, skills transfer, and internal mentorship. By empowering employees, creating continuity, and setting industry standards, organizations can reap significant benefits. As companies navigate the complexities of the modern business environment, initiatives like the INTRATERNSHIP programme will be instrumental in driving growth, innovation, and long-term success.

The skills are in the organisation.  Ask us to help you formalise them and create a culture of formal skills transfer.  It's a badge of merit really.

A little more on the Legal Charter challenge

There's a lot you can learn from that Norton Rose affidavit.   I've been chatting to a few journalists about this which lead me to re-read the affidavit.  The challenge to the dti and the DoJ et al is to show the following (this is taken from Statement 003)

3.1.5 the proposed Sector Code may deviate from Targets and Weightings used in the Codes only where those deviations are justifiable based on sound economic principles, sectorial characteristics or empirical research;
3.1.6 a sector code developed in terms of this statement must set targets which are over and above the minimum targets set out in the Generic Codes of Good Practice.
3.1.7 the proposed Sector Code may deviate from the thresholds set out in the Generic Codes of Good Practice, only where those deviations are justifiable based on sound economic principles, sectorial characteristics or empirical research;

My reading of the underlined sentences is that you need to show sound economic principles were considered as well as either sectoral characteristics or empirical research.  Norton Rose have gone to great lengths to show that none of this was considered.  Of course no other code has been challenged before.  But if they are then the dtic has to prove this.  I am convinced that none of this was a consideration for any of them.  And - those codes that don't deviate from the targets are automatically null and void.

There are articles out there from supporters of the Legal Code, as is their right, that appear to only have one argument. 

A Concerning Position on Transformation

NRF’s application reveals a troubling resistance to genuine transformation. By labeling the Legal Sector Code as “unrealistic” despite the availability of qualified black professionals, NRF appears to prioritise its status quo over meaningful change. This stance undermines the principles of equity and empowerment that South Africa’s democracy was built upon. It also raises doubts about the firm’s commitment to fostering diversity and uplifting historically disadvantaged groups.

Implications for Transformation in the Legal Sector

NRF’s stance against the Legal Sector Code not only resists transformation but risks encouraging similar attitudes in the industry. Transformation policies are crucial for addressing racial imbalances in legal representation and opportunities. Courts must take a firm stance to discourage such challenges, ensuring that empowerment policies are implemented effectively and fairly.

From what I can gather,  Dee-Dee Mathelela, the author of this article is a fine lawyer.  Why is she then arguing on the basis of transformation and not on the basis of law.  Is she saying, as the dti no doubt will, in their response that Norton Rose's level one status which they have achieved since July 2022 (and in the last 15 years they haven't fallen below a 4) is not a commitment to transformation. The evidence is there, prove they aren't. 

This was the same argument one jimmy manyi leveled at Nedbank years ago because Reuel Khoza questioned the quality of ANC leadership at the time. This is what he said

This brings into question the substance of the extraordinarily high BBBEE score on which Nedbank prides itself.

It's such a predictable argument.  You have to ask why have these fucking BEE codes when politicians and commentators negate the process at will. 

 

Legal challenge against legal sector BEE code … An action that is long overdue, and likely to affect other sectors too.

This came as a bit of a surprise.  I was told that the big five law firms were going to launch an application to have the Legal Charter cancelled, removed, struck from memory etc.  The DTIC, DoJ and LPC got a little surprise for Christmas where Norton Rose submitted an urgent application to i) have  the codes suspended and ii) get them booted out of BEE orbit.

The papers are fascinating.  Here they are in two parts, complete with my notes. 

I wrote an article for Moneyweb on this application which was published today.  I've posted the whole article below but if you are a Moneyweb subscriber (and you should be) then the link will be up in perpetuity.

Legal challenge against legal sector BEE code … An action that is long overdue, and likely to affect other sectors too.

Just because legislation deals with righting the wrongs of South Africa’s apartheid past does not mean it is right – nor fair in law.

It has long been my contention that the black economic empowerment (BEE) codes of good practice were some fanciful creation of a department that had no idea of how an economy works. In this instance, the Department of Trade, Industry and Competition (dtic).

But because of the sensitivities surrounding empowerment legislation it has been largely left to its own devices, with codes being published that are devoid of logic and sense.

Almost all gazetted BEE codes happened during the Zuma era under then dtic minister Rob Davies.

Back then the ANC was powerful, and corporate South Africa kowtowed to each piece of legislation, lacking the appetite to question what was being foisted on them.

Fast forward five years, and the ANC is no longer a majority party. It is fundamentally weak and does not enjoy the same levels of fear and respect it had in the past.

Was Tau expecting continued kowtowing?

With this backdrop in mind, current Minister of Trade, Industry and Competition Parks Tau went ahead and gazetted the Legal Sector Code even though he was fully aware that if he did it would likely be challenged in court.

Read: There’s talk of fightback against Tau with his legal sector BEE code [Oct 2024]

Tau possibly thought this threat of litigation would be idle.

That was until 20 December 2024 when Norton Rose Fulbright South Africa Inc filed papers against the ministers of the dtic and the Department of Justice and Constitutional Development as well as the Legal Practice Council requesting the high court to firstly suspend the operation of this code, and secondly to review it and set it aside.

When a law firm fights for itself …

The court papers are an interesting combination of emotional ranting and legal arguments.

The emotional side observes that with the Legal Code having no lead-in period, Norton Rose will fall from a competitive Level 1 to a Level 6 in its next BEE verification (something most of the Big Five law firms will experience).

The firm goes into the potential business impact of this where clients may drop it because its BEE level has dropped. It also observes that it has certain commercial agreements that require it to retain a high BEE level.

Commercial risks aside, the legal argument is an eye-opener.

Norton Rose alleges that due process was not actually followed, an argument that I think can be led against all codes that have been published since 2007.

In addition, it points out that drafters have little idea of how a law firm works. A glaring example is procurement from black advocates; the affidavit is at pains to point out that this expense is pass-through procurement and is paid by the client so it does not become a procurement item.

All BEE sectoral charters may now be at risk

This legal action goes beyond the Legal Sector Charter. It has the potential to have almost all BEE sectoral charters declared null and void because they do exactly what Norton Rose argues is wrong in law.

It’s also a very necessary action because the government has run roughshod over business for decades with impunity. In each case, the dtic has argued that the codes are constitutional without providing supporting evidence to that fact.

In other words, it has been tempting concerned parties to take it to court to prove that the codes are unconstitutional.

For observers like myself these papers offer an insight into the way big business may actually view the various BEE codes.

It’s unlikely that Norton Rose (and the other large firms) didn’t alert its biggest clients that it was going to launch this application.

The potential for reputational damage in this action is massive.

It was not only the law firms that decided to take these codes on review – there must have been tacit consent from the larger firms.

The first shot has been fired. The response from the respondents is going to be very interesting.

I am expecting their papers to be full of the usual anti-transformation rhetoric.

However, somewhere in that response they are going to have to deal with the legality of their actions. We will for the first time in almost 20 years actually see how the government thinks – and what it ultimately thinks about the private sector.

Paul Janisch is a Johannesburg-based BEE consultant and analyst.