SABC Board status inquiry: Day 1; SABC budget 2009/10

Meeting report

Inquiry Into the Status of the SABC Board
The Chairperson begun by welcoming the Executive Members of the South African Broadcasting Corporation (SABC), the SABC board members that were present and the Committee members to this first day of the inquiry into the status of the SABC Board which aimed to determine if it was able to fulfil its statutory and fiduciary duties. The Portfolio Committee was extremely concerned by the lack of effective governance at the SABC. There had been complaints by some of the board members that the short notice given about the inquiry, which was only 24 hours, had not been fair to the members. In respond to that the Chairperson said that this 18 June meeting had in fact been scheduled since 9 June, a date that had been confirmed by the SABC and circulated to board members, although some board members had claimed not to have been informed about this fact. If this was indeed the case, the non-information was due to internal problems at the SABC and the Committee could not be held responsible for the short notice. The Committee was grateful that at least two of the members were present, Ms Nadia Bulbulia and Ms Alison Gilwald. Apologies had been received on behalf of Mr Ashwin Trikamjee and Ms Gloria Serobe who were out of the country, Mr Bheki Khumalo who was ill, Ms Khanyi Mkhonza who could not attended due to prior commitments but who had indicated that she was willing to attend the inquiry at a future point. Finally a notification from Ms Christine Qunta had also been received, in which she indicated her willingness to attend an inquiry on 23 or 25 June. For the record only five apologies had been received. That left Mr Desmond Golding, Ms Fadila Lagadien, Ms Tansi Tlakula and Ms Andile Mbeki who had not given any notification to the Committee as to why they were unable to attend.

The Chairperson said that the Committee wanted to proceed with the inquiry although only two members were present and to continue it in the next week with a greater attendance. The proceeding, although a legal process, was aimed to be as casual as possible in order to keep the board members at ease. A full copy of the Broadcasting Amendment Act and the Articles of Association had been circulated and a copy of the Shareholders Compact had been requested from the department and would hopefully be circulated at the next week’s inquiry. A Deloitte and Touche independent assessment report of the corporate governance at the SABC, dated 19 January 2009, had been received from the Department of Communications (DoC), and neither the DoC nor the Ministry had any objections to making it a public document. This would be put on record since it had a bearing on the proceedings. A letter from the ‘Save Our SABC Coalition’ expressing their views and a joint submission from the three unions at the SABC had been received and were also circulated. There had been a notification from the DoC that they would be willing to appear should the Committee deem it necessary as they were the representatives of the shareholders and were also responsible for the administrative interaction between the SABC and the department. With those few introductory comments the Chairperson left the floor open.

Mr S Kholwane (ANC) stated that he appreciated the attendance of those board members of the SABC that were present as well as the executive managers. About the attendance of the DoC, he asked if the Chair could ensure that they would indeed be present during the proceedings next week. Further the article in the Cape Times this morning from two of the non-present board members had to be mentioned since it suggested many things about the current proceedings. One of them being that the inquiry was an attempt by Committee members at gaining political score points within the ANC relating from before Polokwane. It also stated that when the Board had presented to the Committee in February 2009, the Committee had had no interest in what was being said, but it had sought only to find fault with the Board. Mr Kholwane pleaded that these views were put on record. Also, when the Board presented in April there had already been a leakage of damning reports on other board members relating to the Portfolio Committee and the group Chief Economic Officer (CEO). At that time the Committee had said that it would have been a futile exercise to further engage on said leaked documents and when asked about the leak, the board members had been unable to answer and had said that they would investigate the matter. Whatever had happened after that, the Committee had not been informed and the matter had not yet come to a conclusion. If memos were leaking, what was the guarantee that other sensitive information was not being leaked? These had been the issues that had resulted in the Committee taking the decisions that it subsequently had taken. Mr Kholwane thus felt hurt by the allegations that the Committee was acting on the grounds of self interest. He failed to see how the process at Polokwane was in any way relevant. The Committee was there to deal with the resignations and their motives and that was on what they should focus. Further, the Committee had been criticised for not simply filling the vacant positions, but as a matter of fact the Committee had two options; either to fill the vacant positions or to dissolve the Board and replace it with an interim board. Since both options were viable it would have been irresponsible not to investigate which one of the options was the most suitable.

Secondly there had been reports that the unions wanted to exercise their right to strike which put the nation in a difficult situation. Mr Kholwane therefore wanted to urge the persons in charge of the negotiations to ensure that a strike was avoided due to the implications for the Confederations Cup and the upcoming 2010 World Cup. Perhaps the Committee could even appeal to the Minister to intervene in the process, if this was possible without intervening unduly into the SABC operations. The Committee could not just watch the situation unfold. Those were the ANC’s opening appeals.

Mr B Holomisa (UDM) said that the current SABC Board had seemed to have had a poor relationship with the Committee from the start. There had been campaigns emanating from the Committee to oust the Board which resulted in the vote of no confidence against them. At that time this parliamentary process was not even catered for in law and it had culminated in the Section 15A Broadcasting Act Amendment. Looking at the SABC crisis and related issues it had to be established whether the board members’ resignations were due to the campaign against them or if it was true that they were in fact guilty of mismanagement and defrauding funds. It also had to be pointed out that the elections in April had been the first where SABC had been more fair when it came to live coverage of all political parties and events, although that fairness had since then subdued and the coverage was once again focused only on one party. The point was that that type of coverage, especially the live footage, must have been an expensive exercise for the public broadcaster and it also meant a loss of important advertising time; the final result being increased costs and decreased profits. It was therefore important to establish how big the effect of the election coverage had been on the financial situation within the SABC.

Ms S Magazi (ANC) disagreed with Mr Holomisa’s allegation that the Committee had always had a bad relationship with the SABC. In her opinion the Committee did have a good relationship with the SABC in the way that it was not a ‘personal’ relationship but a professional one where each party did what it was expected to do. Although she appreciated that Mr Holomisa commended the SABC for the good job it had done during the election, it was wrong to imply that the financial situation of the SABC was due to ANC manipulations.

Mr Holomisa interjected and appealed to the Chair for protection, insisting that that was not what he had said.

The Chair said that the Honourable Members should try to avoid having a party debate; the current inquiry was supposed to be into the work of the Board and not into the Committee’s internal workings.

Ms J Kilian (COPE) wanted clarification about the formality of the current inquiry. Had the board members been informed that they were allowed to bring legal presentation to the proceedings and had it been clear to them what process was in fact awaiting them?

The Chair answered that the letter clearly stated that the inquiry was in terms of the 15A amendment but that it had not spelled out that they were entitled to bring legal presentation.

Mr B Manamela (ANC) said that it would not benefit anyone if the proceedings were conducted in a highly formal format where members were informed ‘that they had the right to remain silent and so on…’ He also wanted to address the Cape Times article and point out that the current hearing did follow due process. The claims that the Committee was trying to ‘do away’ with the Board or that the amendment of the Broadcasting Act did not follow proper process, were highly unfounded. It was not the case that it had to be a Minister or Cabinet that initiated legislation and he suggested that the authors of the article should have checked the Constitution before they went running to the newspapers. Furthermore the internal battles within the ruling party that had been alluded to as a motivation for the removal of the Board were no longer existent – those who had caused the battles had left the party. Also, even if there had been an intention to remove the Board before it was even appointed, this was in fact inconsequential. This was because all the reports that had been made in the public, including judgments from the Supreme Court of Appeal and independent forensic reports into the corporate government at the SABC had clearly shown the dismal failure of the Board to fulfil its duties. People could argue as they liked that the current process had political intentions but it was not going to change the fact that the Board was dysfunctional. Irrespective of the short notice of the inquiry; if the board members had appropriately conceived of the seriousness of the crises they should not have been “out of the country” in the first place. However this was not to say that he did not appreciate the due apologies, but if they would have taken their responsibilities seriously the crisis and the current proceedings should have been priority number one.

The Chair asked members to avoid discussing the Cape Times article any further since it was not written by the board members present and they could therefore not be asked to respond to the comments made.

Ms Kilian commented that peopled had expressed their views but that the fact was that all members had said that they would attend the inquiry at a later stage. Today’s meeting was scheduled as a budget presentation and she thus wanted to know if it had been natural for all board members to attend such a meeting under normal circumstances? Also she pointed out that it was not in the interest of the Committee to make allegations one way or the other.

The Chairperson responded that normally the executive management and the Chairperson of the Board would attend such meetings but that it had been decided last year that all board members should attend since they all made up the Accounting Officer. He also pointed out that people should not make the mistake to think about this Committee as the same Committee that sat last year. This was a new Parliament with a new mandate and a Committee with many new members and that should be kept in mind.

Mr K Zondi (IFP) appreciated that the Chair had offered the members to give preliminary remarks but he wanted to reiterate that the Committee should not be distracted by outside interferences but focus on hearing the two board members that were present in order to gain the appropriate information about what was going on inside the Board before jumping to any conclusions.

Mr N Van Der Berg (DA) noted that 35 minutes into the meeting no questions had been asked the visitors and he thus wanted to proceed by doing so. In the literature each story had a leitmotif and the question was what was the leitmotif of the SABC saga and when did it first appear to spark the crisis? A debt of 800 million did not simply show up on a Monday morning, but was the result of a gradual deterioration. If the only question that was answered today was what the leitmotif was and when it first appeared, he would be satisfied. And he was sure that if the board members were honest, they would agree that there was indeed such a moment in time.

Mr Kholwane also alluded to the fact that the board members had at this point not yet said a single word.

Adv J De Lange (ANC) reminded everyone that this inquiry was in terms of Section 15A of the Broadcasting Amendment Bill and that the Committee had to do this in order to determine whether it could dissolve the Board. There were three grounds on which to dissolve the Board: a failure to discharge its fiduciary duties, a failure to adhere to the Charter and a failure to carry out its duties as contemplated in Section 13(10) of the Act. The Committee should therefore start asking question and try to attain documents which pertained to those facts. Perhaps the Committee should also relook at the way they were conducting the inquiry in order to make it more efficient, although normally in Parliament all members would be asking questions just like Mr Manamela, Me Van der Berg and Mr Kholwane had been doing.

The Chair interjected and instructed the board members to answer Mr Van der Berg’s question.

Ms A Gilwald began by pointing out that the letter calling the members had only been received late yesterday and that the board members had not received the previous notification to attend the scheduled budget presentation. Furthermore preparing for a budget presentation and preparing for an inquiry into the functioning of the Board were two very different things. She was, however, very keen to resolve the issue that the Board could not fulfil even its most basic duties. Although it had been said that she had ‘refused’ to resign, this was not the case as she had merely stayed on because of the fiduciary responsibility that fell on her as a Board member; a liability which a resignation did not exonerate one from. She further wanted to plead with the Committee that the inquiry in terms of Section 15A could not begin with only two of the board members present. Assumingly the Committee wanted to ask the questions to the entire Board and therefore she wanted to propose that the resolution of the crisis be dealt with next week with all members present. The issues of the inquiry and the immediate addressing of the crisis the Board was, in her understanding, that the resignation of three members at the same time had effectively resulted in there being no quorum in the body and that the Board therefore was dissolved. The Board had collapsed and she urged the Committee to as swiftly as possible find a resolution to that. She did not however think that the terms of the inquiry were properly framed at the moment, nor did she think that the board members had been given adequate notice to prepare a meaningful outcome to such an inquiry. There were a lot more public interest issues at stake than simply the financial situation of the public broadcaster (although perhaps it should not have been referred to ‘as simply’ since it was a very serious matter). All those issues could not be dealt with adequately by only two members without a clear indication of what the charges or allegations of the inquiry were.

Ms Bulbulia said that she had already sent her response via email in case she was not able to make it on time and her response dealt directly with the letter that the Chairperson had sent about the legality of the Board. Quite simply the Board did not form a quorum since the Deputy Chairperson had resigned and the Chairperson had stepped down from her post as chair although still remaining on the Board.

Ms Bulbulia continued that it was everybody’s understanding that that represented in effect a dissolution of the Board. In the letter it also stated that the Committee was looking forward to the SABC delegation and she wanted to point out that the delegation had not had a chance to meet or discuss anything prior to today due to the late notification and that she was there under great duress since she had a day job as well. She did manage to get to the meeting in order to hope to understand the steps of the procedure that had been embarked upon. She also wanted to thank Committee members for taking a more holistic and structured view on the inquiry since it would be rather unfair to ask her, Nadia Bulbulia, what had been happening in all manner of things. She was still a member of the Board until there had been a formal notice of the dissolution of the Board and an interim Board had been appointed. That said, she just wanted to put on record that she had responded to the letter in writing and that she was present today and looked forward to knowing what it was the Committee required in terms of the full Board to come and report. Also, as far as she was concerned, her understanding that board members who had resigned were still under their resignation period of three months, which also raised a whole host of question about the functioning of the Board. Moving forward it was clear that she supported the public process and that she was duty bound to respond to the Committee’s inquiry but that she wanted clarified what she was in fact responding to.

The Chair asked if any of the two board members had any responses to Mr Van Der Berg’s question.

Ms Gilwald said that if they responded to one question they would be required to also respond to other questions, which was not fair without the other board members present. Although the Board shared the responsibility collectively it was not a single unit but made up of twelve individuals who had dissenting views on all sorts of critical issues. As such, even though she could give her view it would most likely be different to other persons’ views and they would want to respond to that. She really thought that a serious inquiry into the crisis at the SABC, into the contradictions in the funding models and into a resolution that would see an interim Board swiftly put into place, needed to be considered. She did not think that the appeal for instant resignations of board members had been considered in terms of their implications on critical issues that were going on in the country at present and in the future. If the Board did not function, the SABC did not function. The legal constraints and protections of its own statute and the Public Finance Management Act (PMFA) meant that if the Board did not have a quorum, the SABC as an organisation would grind to a halt. The incomplete audit process, the budgetary approvals to pay the salary increases, the approval of the critical 2010 capital expenditure which had to be started in order for the SABC to meet its deadlines, addressing the issue of the liquidity crisis and the payment to independent producers were all issues that could not be properly dealt with without a Board. It was the commitment to keeping the SABC ticking over that had compelled her to remain on the Board. She thought that they were very keen to find a solution that would allow them to feel comfortable about their fiduciary responsibilities and their liabilities while the matter was being addressed. They wanted a clean transition that would allow the precious damaged institution to actually function, which it was not at the moment.

Adv De Lange said that he thought that what the board members had just said, that they do not want to answer any questions, had already given the Committee a lot of answers as to what the problem was and why the Committee should have acted a week ago and not now. It had to be very clear that the Act that was passed recently was setting the perimeters of the inquiry. He was not sure what the board members were talking about when they said they wanted the accusations on paper. It was simple: the Act said that there were three grounds on which the Board could be dissolved and that was what they had asked the Board to come and answer. Firstly about the discharging of the fiduciary duties, the Committee could look at all the accusations of the unions, of the CEO against the Board and list them but that was not how the inquiry would work since it would require the Committee to put one group of information against another group of information. The inquiry was to bring the board members to the Committee as a Board, since they were going to be there anyway. Now only two had arrived, but the inquiry had to continue irrespective since all the reasons that had been given as to the problems within the SABC had made it clear that there was no Board, which was exactly the issue that the Committee had wanted to establish in the first place.

The dysfunctionality should be looked at so that the Committee could get an understanding of it and then it should be decided what the next step was, however since some board members had already stated that they wanted to come next week the next step had already been implicitly decided on. There was no easy way to start the process and the suggestion by Ms Gilwald to postpone the inquiry was wrong, the inquiry would start today because there was no guarantee that other members would arrive next week and the Committee could not keep on waiting, knowing that there was no Accounting Officer in the SABC. What needed to be done was not to ask specific questions that members may not have prepared for, but rather to ask general questions about the functioning of the Board; such as when last did it meet, who was still there and so on. If the members felt they were not adequately prepared to answer specific questions they could simply state that and those questions could be revisited next week.

Ms P De Lille (ID) needed clarity about the agenda of the day. Her understanding was that there were two items on the agenda, the SABC Board inquiry and the budget presentation of the SABC delegation. The inquiry had been put as number one but could the Committee instead turn it around and begin with the budget presentation and thereafter go into the inquiry since there were a number of issues in the budget document that could justify an inquiry in itself and also give some structure to guide the inquiry.

The Chair said that the inquiry had already started and that the meeting would continue as it was. From his side, he wanted to say that there was no established procedure on how to conduct the present inquiry since the relevant amendment was very new. If the Board was not a legal entity then the Board could not take any binding decisions and thus even if the Board had come as a caucus they would only be able to speak as individuals. Moreover the Committee did not want one view to emanate from the Board; they wanted to understand what had gone wrong. Individual board members would have to explain themselves. In the article in the Cape Times Christine Qunta still referred to herself as the deputy Chairperson of the Board. Had she stepped down or had she not? Ms Gilwald said that she had resigned and if she had not resigned why was Ashwin Trikamjee appointed as the interim deputy? It was clear that there would be no collective view coming from the Board and so the Committee wanted to, and would, proceed and the board members would answer questions in their individual capacity since the Board was dysfunctional.

Ms Kilian wondered whether the Board could still function while the members were obliged to serve out their periods of resignation. She understood that the main problem was that of not having a Chairperson, but according to the newspaper article the Chairperson did not resign to the President. Also the President, as the appointing office, should appoint a new Chairperson if the Chair had resigned in terms of the Act. It therefore seemed that there was still a Board but the question was whether there was still a Chairperson. The Committee had yesterday asked its Chair to find out whether a letter of resignation had in fact been received by the Presidency in order to get further direction. Ms Kilian wanted to appeal that the Committee let the board members decide by majority if they wanted to proceed today or not, since Parliament was not to be seen as not being fair or not following due process. And it did seem unfair to the two members that were present to put them on the hotspot. Therefore the Committee should perhaps rather reconvene and continue the inquiry when the entire Board was present. Also, some of the new members of the Committee were at a disadvantage since the presentation that would have been made today by the SABC would have increased their understanding of what had been going on within the SABC. In summary, she suggested that first of all the legality of the Board was brought to clarity. If the ANC had decided that the Board was to be dissolved today and not a day later they just had to come out and say so. Otherwise the Committee had to have due process since there were laws of the land and those had to be respected.

Mr Kholwane called on the Chair to state a point of order. The ANC did want to follow due process; what ANC was Ms Kilian talking about because it was clearly not the ANC that he belonged to and that was committed to following due process and conducting a proper investigation before any decision was taken.

The Chair agreed that it was quite clear that the Committee was not ready to give a decision today and asked Mr Kilian to proceed with her comment.

Ms Kilian said that she was happy that the ANC had clarified their position and COPE just wanted to follow due process to get to the bottom of all of this and find a solution. Clearly simply adding new faces to the Board would not resolve the situation so it needed to be established what the extent of the mismanagement was or if it was just an issue of it being unclear where the responsibilities lay.

The Chair said that if COPE would ask those questions it would help everyone. But what did she mean by saying that the Committee had to follow due process? The members needed to ask questions in order to establish what had been going on and if she had not prepared herself to do so then COPE and its team would have to go back and prepare properly for the next meeting.

Mr Zondi wanted to get a response from the board members because as the Chair said the Committee was not looking for a collective response. His understanding was that they were individually responsible for what had happened and that they should therefore provide the Committee with information. It had to of course be recognised that they did not have the full presence of the Board which would have made the inquiry better.

Ms Gilwald wanted to respond to the earlier comment and to clarify the terms of the hearing. Firstly she had not suggested that they did not proceed with the inquiry in order for the Board to be able to account as one, but rather so that all members could be given a chance to respond if something was said that they did not agree with. Secondly the terms of the inquiry as stated by Adv De Lange were unusually vague. What was meant by misconduct in this situation? She found the formulation of the letter and the timing of the inquiry extremely prejudicial but she would answer the questions as required. As board members they all did accept the collective responsibility, however, with respect to the current crisis the Committee should also take some responsibility. It was after all this Committee that had appointed the Board and that had shamefully pointed fingers at each other within Parliament last year about how people had come onto the Board. There was no responsibility taken for that, for the disrespect it had brought to this Parliament and to the people that it had appointed and to the hard-fought for public democratic processes. She was not sure why any self-respecting person would make themselves available for public offer when the Committee, the Parliament, that had appointed them was unable to defend them or indeed find their appointment defensible. Having said that, it had to be clear that she did accept responsibility and would like to account as well as she could in order for the issues to be resolved as quickly as possible.

Ms Bulbulia wanted to put to the record that according to her knowledge, the resignation period of three months had not been shortened for any of the members that had resigned. Had she misunderstood this they needed to be informed accordingly.

Adv De Lange reiterated for those who did not attend the previous meeting that they had decided to not accuse individual persons on the Board since this would require the Committee to hold disciplinary hearings. What they had agreed on was to operate on the Section 15A(1)(b) to establish if, as a collective, the Board had failed to discharge its fiduciary duties; adhere to the Charter; or failed to carry out its duties as contemplated in Section 13(10) and consequently decide if there had been a material breach in terms of the Act or not. The Committee had tried to avoid accusing individuals since this would force the inquiry to focus on whether there had been misconduct on the behalf of individual members which would inevitably result in a disciplinary hearing. This was not an inquiry into misconduct but an inquiry into the functioning of the Board in terms of its duties. The Committee could well come to the conclusion that the Board was functioning wonderfully and that all the commotion was just the result of a huge smear campaign in the media and that the right thing to do would be to let the Board continue as it were (although it might have gone a bit far for that considering all the resignations). To establish whether it had or had not fulfilled its duties should not be too difficult. Regarding the fiduciary duties for example there was a two-page document which outlined exactly what they denoted. Moreover, in the current situation the Committee had no right to look into anything else since they had called the Board in terms of Section 15A(1)(b).

Adv De Lange said that it was also clear that this process would not be a quick fix because an investigation could result in half the Board confessing to have done something that the other half denied. To conclude he did not understand why there was no clarity into the inquiry since the Committee had followed the Act to the point. If they would have been asked to do it in any other way they would have been forced to divide the Board and set up one member against another, which would have been unfortunate. The first thing they needed to establish was if the Board could function or not since they had to have someone responsible to end the R800 million debt.

Ms Mazibuko (DA) asked if they could refer to the current process as following due process when there were only two board members present while there were still four members who had not resigned from the Board. She was under the impression that they had come here today to find out whether to extend the inquiry or not. At the moment the Section of the Act that they were considering outlined that they were making an inquiry into the Board collectively. Should the board members then not account to the Committee as a collective?

Mr Kholwane said that he could not understand this. Was it not possible that someone present could tell the Committee when last the Board had met? Or why the Independent Producers’ Organisation (IPO) had not been paid if the Board was still functioning? Could the board members just tell the Committee when the last binding decision was taken? If it was recent, then had the decision not to pay the IPO been deliberate? There was no legality in what was being asked so it should be an easy question to answer.

The Chairperson wanted clarification into the question whether or not there was a chairperson and a deputy chairperson.

Ms Gilwald answered that essentially the Committee was asking for a legal opinion. The way the Board had viewed it was that its last meeting had been on 4 June when it had dealt with many pressing issues, one of them being the lack confidence in the chairperson. This had resulted in the chair stepping down and Mr Trikamjee being appointed to resolve a deadlock. The Articles of Association had allowed for an appointment of a chairperson on a meeting to meeting basis and that was how he was appointed and requested to present to you and to the Minister on the liquidity crisis. Shortly after that meeting three additional members resigned in a manner that we thought at the time was immediate. During the meeting with the shareholders the general understanding was that the Board had collapsed.

Ms Bulbulia said that she felt like the Committee was going around in circles. None of the board members had given a response when it came to resigning before their period of resignation had run out. If that was incorrect they needed to know because if they were, it was simple and the Board was no longer quorum. But as far as she knew no such special privileges had been granted.

The Chair responded that the Committee would make sure they got this information from the Presidency.

Ms R Morutoa (ANC) asked if the meeting on 4 June was legitimate.

Ms Gilwald replied that the decision on the restitution of the chairperson had been taken at the end of the meeting and so all other decisions taken had been legally binding.  

Mr Van Der Berg agreed with Ms Bulbulia that they were in fact running around in circles. The main object of this meeting and what the Committee and Parliament had a responsibility to do, was to get the SABC back on track since it was a national asset. She was concerned that Sentech would no longer cooperate with the SABC due to non-payment and that the independent producers had not been paid. If they really tried was it not possible for the Committee to come to a solution today? Would Ms Gilwald be prepared to continue on the Board if they asked her to? Could they install the new persons to ensure that the Board was functional? So far the inquiry had led to no answers, it was more like a radio show where many questions were asked and none of them answered.

The Chair said that he thought that the meeting had been useful since the Committee was getting clarity amongst themselves which was a good start.

Ms De Lille wanted to put her questions to the Board, some of which related to the presentation, and she wanted them to form part of the inquiry and asked if she could go ahead?

The Chairperson said that she may do so.

Ms De Lille said that page seven of the presentation dealt with expenditure and said that certain units had been overspent so the first question was why had that been so? The overspent units were listed on page 16, the first one being Employee Compensation and Benefit Expenses, the second area was Professional and Consulting Fees by about 32% and finally an item called ‘Other Expenses’ was overspent by a substantial amount; could the Committee get a breakdown of what Other Expenses included?

Secondly, on page eight it stated that the creditors’ terms were under pressure due to cash flow problems. The trade report of the first two months had shown a continued slowdown of the economy. The PFMA required that, unless otherwise stated, contractor payments had to be made within 30 days of receiving the supplies and the invoice, so that the department did not conceal liabilities. Why had the SABC contravened the PFMA in this regard?

Then she wanted to seek clarity on the same page, about the austerity measures which said that the SABC was making an appeal to national government to reduce spending in order to pay their creditors. What did that column mean?

On page 12 the financial risk issues were listed and it said that the working capital management had been needed earlier and that there should have been a more aggressive intervention. It referred to operational liquidity assets and liabilities, but could the Committee please have a breakdown of exactly what working capital was? Also saying that more aggressive intervention was needed seemed to mean that there had been no intervention and that it only had now been discovered that there was a problem.

The last two issues were, firstly on page 17, the statement on the financial position trade and other receivables; once again, could it be brought to clarity what this entailed. And finally on 20 November 2008 the ID had raised a question on the spending of the SABC on employees who had attended the Beijing Olympics, during which a total of R2.7 million was spent. What had the purpose been of the delegation? A breakdown of the costs had been requested and received and it had been asked if partners had been included in the delegation. It had been answered that they were since this was in line with the SABC approved travel policy. She wanted to see that policy. When the spending per guest was broken down it showed that R49 990 was spend on the flight ticket, R56 875 on accommodation, on food and drinks R14 000 was spent and on entertainment R57 536. How on earth could this kind of money have been spent on one trip? Moreover the SABC had promised the Minister that all those, about ten of them, who formed part of the delegation would write reports that would be forwarded to the Committee. So far only three reports had been received by Parliament which made her wonder if the other reports had been submitted at all. Those were the questions that Ms De Lille wanted to ask and she thanked the Chairperson.

Mr G Radebe (ANC) wanted to put forward that the members of the Board should not come forward to the Committee unable and unprepared to account when they were called on to do so. They should not say that they needed to caucus. What had they come there for? This was not a game; there was not enough time to ask questions that were not being answered.

Ms Kilian had two questions. Could the board members tell the Committee when they had been informed of the financial woes of the SABC, was it possibly when the public processes started? Could the Committee also have more information from the Chief Financial Officer (CFO)? Had the financial department been convinced last year that they would see ends meet when the budget was tabled, and when did they become aware that there would be serious challenges and shortcomings? Also could the board members be asked if they had experienced any pressure from anywhere that they had to resign from the Board? Lastly could the board members tell the Committee if they had at any time become aware of pressures from any source regarding what programming that was being aired?

Mr Manamela asked to mention a few points to the Board. Firstly, throughout the process there had been a determination to waste a whole range of money to ensure that the Group CEO of the SABC be dismissed. This was a major concern that needed to be explained to the Committee since it had wasted major resources. Secondly, over a short period of time, the Board had met 20 times when they should under normal circumstances have met six times. This reflected on the crisis mode that the Board seemed to have been operating under and this needed to be explained. Then, about the chairperson of the Board deciding to step down, there had been reports of excessive spending on behalf of the chairperson; being almost a fulltime employee of the SABC with a company car and security exceeding the required amount of R40 000. What had the role of the Board been in asking the chair to step down? Then there were also certain instances when the Board had clearly intervened into what should have been executive management functions. There was an R800 million problem within the SABC which deserved an explanation beyond the fact that the country was experiencing an economic recession. Finally there needed to be an understanding and a commitment from management or the Board when it came to the payment of the producers. Major resources were being spent on internal forensic reports when the money could have easily have been spent on paying producers providing content for the SABC. On the matter of the disagreement with the trade unions, if they decided to strike, the nation would experience a blackout which was something that the Board needed to think about and explain. He was also quite worried that some parties, specifically COPE and the DA, seemed to have changed their minds from yesterday to today regarding the inquiry process. Perhaps this had been due to the increase in the audience, but those types of tricks were not suitable considering the severity of the situation. The Committee needed to make sure that the Committee saved the SABC.

The Chairperson called for last questions, identified three hands and stated that he would close after that.

Adv De Lange wanted to make sure that there was no confusion that on Tuesday 23 June they would continue the Section 15A(1)(b) inquiry regarding the fiduciary duties and the board members would be given a document which clarified which those duties were to facilitate a quicker proceeding. The Committee would also ask questions about the adherence to the Charter and the duties in terms of 13(10). About the fiduciary duties. Ms De Lille and Mr Manamela had already raised a whole range of questions but the Committee would specifically be asking questions on the PMFA since the whole Board was responsible for the its compliance with that Act. It was also important that questions were asked on the Touche and Deloitte report which was rather damning and it was only fair for the Board to respond to that.

Also as Ms De Lille pointed out, the internal weaknesses from the Board’s own point of view should be dealt with and the Committee should also ask questions on the report which had been sent in by the three unions which raised many serious questions about the situation inside the SABC. Also something that worried him was that he understood that the Board was acting under no shareholder’s compact since March – that no compact had been signed between the Government and the SABC Board. This was a huge problem that they had to go into extensively. Again the three issues were the ones in the Act. Finally it was crucial that the Committee made sure that all the board members were personally notified of the upcoming meeting, perhaps the Committee itself could send out the invitations and not leave the responsibility for notification to the SABC so that a situation similar to today could be avoided.

The Chairperson suggested that the company secretary gave the Committee the board members’ email addresses before the meeting was adjourned so that the Committee could extend an invitation.

Mr L Mkhize (ANC) asked, if the last meeting was on the 4 June, what had the Board been doing about the challenges facing the SABC since then. Did they think that they would be able to address the crisis when only four members remained on the Board? He was also disturbed by the view that they were not prepared for this meeting, but perhaps this was a trend within the SABC since the Deloitte report had said that employees often were unprepared for meetings.

Ms Mazibuko stated that in yesterday’s meeting the DA did express their concerns about this meeting and they had mentioned that there were two options on the table: either to restore the quorum by filling empty posts and letting the President appoint a new chairperson or to go ahead and to dissolve the Board. The accusation that the DA had simply changed its mind was therefore somewhat disingenuous. She also wanted to ask the board members that were present how many times the Board had attempted to, or managed to inform the Committee or Parliament of the financial problems of the SABC. When were the issues raised, did they form part of the agenda, how many times were they raised after the new board was appointed? If they were not discussed what had the reason been for that, and if they had been postponed were they brought up at a later stage?

Ms Charlotte Mampane, acting Chief Operating Officer, wanted to know given the questions that had been asked if the answers were to be given now or not. She also wanted to raise other issues because she felt that as management they needed to engage the Committee on other important issues that had been going on inside the organisation. It was true that the last Board meeting took place on 4 June but the agenda had been very long. There were many critical issues such as approval of big projects which needed to be approved by the Board. With technology projects, which relied on imports, it was crucial that decisions were taken now to meet the deadlines. She wanted to impress on the Committee that while the inquiry was continuing and the board members had to come back, there were critical issues within the organisation that were held up. There were levels up to which management was able to approve, beyond that it became a problem. One Committee member had raised the issue of independent producers, and approval of payments to them had to be processed in good time since producers needed money before going into filming or production. All those issues inside the organisation were pressing and could end up frustrating the running of the organisation. If the process continued it had to be kept in mind that all those things were pending this process.

Ms Magazi wanted to ask the present members of the Board whether they considered that they still made up a quorum, because on 11 June resignations were sent to the Minister and the President. So as far as she was concerned there was no Board.

The Chair urged members to help him bring the proceeding to a close so that they could move on to the next item on the agenda.

Mr Kholwane also wanted to point out that board members should prepare to answer the questions next week. He was aware of a letter from board member Mr Bheki Khumalo (which had possibly leaked to the newspapers) which seemed to have played a part in the process culminating in the chairperson of the Board stepping down. The letter alluded to several financial issues on behalf of the chairperson and those issues should also be explained since it needed to be known that the Board exercised their fiduciary duties. How had the Board dealt with the chairperson going outside of his fiduciary allowed parameters?

Ms Morutoa was bothered by some of the utterances. She needed Ms Gilwald to explain why and how the Committee was accused of causing the collapse of the SABC Board.

Ms Bulbulia noted that there was a whole list of issues that needed to be answered to and she would apply her mind to make sure to answer these next week. Also some of the issues might have been addressed in the presentation which she thought would have been done before the inquiry. Considering the new members of the Committee it was important for them to look back at the history of the institution itself. Particularly they should consider the Triple Inquiry Report which had been done in 1995 by the former Independent Broadcasting Authority on the sustainability and viability of a public broadcaster and that had made recommendations to the Parliament which had not been accepted at the time. Some of this had played a part in where the SABC was today in terms of independent producers, outsourcing and so on. To look at the structural and financial issues more holistically, members needed to keep the history in mind. There had been a long history that had led the SABC to where it was today. She did thank the Committee for the questions and she would do her best to respond to them by next week.

Mr Gilwald thought that the specific points that were raised by Ms De Lille could be addressed by the CFO during the presentation. There were so many points, some of which would require a more detailed response, but she wanted to come back to the issue of caucusing because it seemed she had not yet made herself clear. There was no caucusing of the Board; the request was to have time to prepare to answer the questions and it seemed useful to get the proper documentation and a sense of in which direction the inquiry would be going in order to be able to properly prepare.

There was also the ongoing question of the Board being able to operate, under the assumption that the Board was trying to operate under these circumstances. Since the stepping down of the three members the Board had not met as a board, the understanding had been that the Board did not have quorum and could not meet. If there was some way it could meet, if only to address some of the most pressing issued that could be a solution, but this was not an assumption that they had been operating under. There had been attempts to keep the organisation ticking over with the appointment of a chair on a meeting-to-meeting basis but that had been rejected in terms of various legal bodies. She had to say that she could not help to take exception to broad statements that the Board was unprepared. Although she realised that the Deloitte and Touche report, which she had not been interviewed for, had been damning she had always been prepared for every meeting and was happy to account for the decisions she had made over the years.

In terms of the broader fiduciary duties arising from Ms De Lille’s questions she pointed out that the fiduciary crisis had been on top of the Board’s agenda since the new Board had been appointed. The Board had been immediately presented with the first budget which included the proposal of a R600 million deficit budget and the Board was very clear that it would not accept that budget without guarantees that that kind of money had been secured. Although she was not part of the financial Committee of the Board she had sat in on many meetings and the budget had been scrutinised extremely closely. The various measures that had been put in place had resulted in the scrutinising of the figures, and had raised many questions that had also been brought up in today’s meeting, such as lack of clarity in figures, voluntary payments to the pension scheme and unclear spending categories.

It should also be pointed out that the R600 million budget deficit had in part been a response to the costly extended mandate of the Board that the regulator had rightfully placed on the broadcaster. The preparation for the Digital Terrestrial Transmission (DTT) had been extremely costly even before the actual implementation had begun. There were a number of things that had caused the deficit but the entire deficit could not be explained. There had been questions on the bloated-ness of the organisation. However all these questions had been scrutinised and hopefully some of the questions raised by the Committee would be answered during the management presentation.

There were also other issues beyond the finances that were linked to in what way the Committee should bear some, though not all, of the responsibility of the current crisis. Although it was very difficult to separate the issues it was important that they were separated since there was a conflation of the problems due to the structure of the funding model; an issue which the Committee had been made aware of as long as she had been on the Board and certainly also before then. There was a relevant history and she requested that the Committee, in order to be part of the resolution, would take responsibility for this. In fact what had happened now was a case of too little too late. The broadcaster had been left to swing in the wind for far to long for this situation to be solved by a simply appointing a new board. Those who had left SABC swinging in the wind would have very little to pick up. The issues could not be understood without going back in time and one had to look at the fact that this Committee had chosen to support the reappointment of more than half of the previous board, whose activities had ranged from the “blacklisting” saga, the removal of the previous CEO and questions of micromanagement. What was more was that these issues had all been accounted to in front of this Committee.

The ongoing report of the financial implications of the funding model had also been presented to the Committee, including the fact that the public broadcaster depended on commercial revenues for 85% which was not sustainable in the long term. The fact that many of the old board members were reappointed resulted in their rightful assumption that what they had been doing had been condoned. Collectively responsibility had to be accepted for that; she was indeed part of that, but why would the Committee be surprised that the Board had continued behaving as before when in effect the Committee had endorsed the behaviour by reappointing old members?

About the issues around the freedom of expression she could address that; her position on the blacklisting was probably well known and she thought it was known that she had not supported the dismissal of the CEO. That was not to say that there had not been any performance issues, and there had been concerns about how these things were going to be handled. One had to accept responsibility for the decisions that one may or may not have supported and the interest of the organisation had to be put first. Where it did appear that people had been willing to act, not in the interest of the SABC but in their personal and private interest, it raised questions about what options were feasible going ahead. There had been a breakdown of trust and the organisation was in desperate need of leadership and management.

Looking at the issue of the shareholders’ compact she thought that people had been aware that it had not been in place and that people had also been aware of the situation within the Ministry with the resignation of the Director General and the untimely and unfortunate death of the Minister. The compact should have been made in advance, there was not getting away from that but perhaps the Department and the chairperson could talk more closely on that.

In response to Mr Khumalo’s question about the allegations made concerning the chairperson, there had been a concern within the Board that those allegations needed to be addressed in a proper forum and there had also been concerns about how the allegations had been raised and then found in the public forum. The issue had however been addressed right at the end of a meeting at which time Mr Khumalo had already left. The Board had had an intention to address those issues further in the future and the chairperson had wanted to clear her name but unfortunately since then no meeting had been held.

Mr Sipho Sithole, SABC Head of Group Strategy and Risk, wanted to raise two issues which reiterated what the acting COO had been saying. As management they had a job to do and there were issues that required the approval of the Board and now the Board was not there. That was the issue that the Committee had to deal with because the SABC needed to deliver public value and if they could not do that they were failing the public. The resigned members who said that they were still serving their resignation period had not come to any Board meetings, but it was not possible to serve out one’s resignation period from home. There were long term decisions that needed to be made by any board and he was worried whether those decisions would ever be made. He was very concerned because at some time they wanted to go back to work and they wanted to have their strategy considered by the Committee. As a layperson he was sitting asking himself about the due process which had to be followed and which seemed to be able to take two weeks or three years and in the mean time there would not be a board. Was it not possible for the Committee to suspend the Board pending the inquiry and appoint an interim Board in the mean time? The SABC was in a state of impasse so he wanted to request an interim Board. They needed a Board and they needed to work.

Ms Phumelele Ntombela-Nzimande, the SABC Chief People Officer, said that she wanted to repeat what she had said on 30 April last year; the SABC was a public entity and the management and the Board had a responsibility to the people of South Africa to make sure that they contributed to the value of the public broadcaster and supported democracy. They had a responsibility to respond to some of the things that had been said. To the benefit of the new Committee members she wanted to put on record that some of the management last year had officially stated that they had never before experienced a situation where they in April had not yet been given a chance to present their strategy to a Board that had commenced on 29 January. On 30 April the management team had said that that the corporate governance had collapsed straight from the beginning even though a proper orientation had been given to the Board. The management had been upfront to the Committee and to the then President of the country and had admitted that there was a problem. Many people had focused on the fact that the management was re-writing the corporate governance but management had wanted everyone to remember that they had realised when things was going wrong and she wanted that initiative acknowledged.

The second thing that worried her was that the remaining members of the Board had at no time acknowledged or accepted the fact that there had been a situation where the Board was disrupting its own strategy from implementation. That the Committee was responsible for a big part of the crisis was nonsense. There had been situations where board members had stood in front of 125 managers and rubbished their strategies. That was somewhat of a record. The SABC was such an important public entity at the heart of supporting democracy since one out of three citizens could not read or write and depended entirely on television for their education and entertainment. In times like these people had to let go of their egos and stand up as citizens and admit that they had erred. Seven managers had stood up more than a year ago and said that the SABC was a case where corporate governance had gone mad and where the corporate governance was being rewritten in a way that would make Enron look like a dream.

The Chair introduced Mr Dali Mpofu, former CEO of SABC who had been declared as having been unlawfully dismissed and who had asked to speak in front of the Committee.

Mr Mpofu said that when conducting the Board inquiry the Committee should also look at the court rulings from last year and from last week. Those judgments would make the Committee’s job very easy because like the Deloitte report these were objective observers who had made very important observations relating to what Adv De Lange had been talking about such as fiduciary duties and abilities to lead an organisation such as the SABC. The second issue that he wanted to point out was that far from being responsible for this mess the Committee was one of the only parties that could consider itself smelling like roses walking out of this saga. On 29 April 2008 the Committee had already stated that the Board was not functioning. It was a futile argument to say that the Committee was responsible simply due to being the appointing body. The issue was that when the inquiry had finished it would be clear that as Mr Bheki Khumalo had said that from the inception the Board had been responsible for the mess that they found themselves in. Finally he wanted to say that the process of the inquiry could not go on forever. He himself had a matter going up into Labour Court but as it were there was no one who could respond to his allegation since there was no Accounting Officer at the Board. There was also an urgency from the management side that the SABC started functioning. As Mr Sithole said there should perhaps be an interim Board put into place as soon as possible. Perhaps the first thing that should be done was to find out from the members that had resigned was if their resignations were in fact with immediate result. If they were there was no Board - which meant that the process could go on inserting a structure of leadership in the SABC.

Mr Rob Nicholson, CFO: SABC, requested that they receive the relevant documents and questions so that they could prepare and write their responses before the meeting to aid an efficient proceeding. The second issue was that the SABC was in the middle of an audit and also in an advance negotiation with the National Treasury around financing issues. He therefore wanted to request that if they got onto those issues that the Committee would consider closing the doors, since the SABC was after all a competitive entity.

Mr Gab Mampone, Acting SABC CEO, thanked the Chair and the Portfolio Committee and wanted to say that whether the Board remained or not the situation at the SABC demanded the following: the SABC needed a Board that would demand accountability from the management but that at the same time would not interfere with the operations. In their eagerness to deal with some matters that the management should have done, the previous Board had gotten wrongfully involved operationally instead of cracking the whip. The Board needed to clearly state what it expected from management and what the consequences would be if the expectations were not met. Much confusion had been caused by the undue intervention by the previous Board. There were areas in which it was important that management performed. As non-executives they were responsible for direction, management and driving of the business and they had to be given the space to manoeuvre appropriately.

About the question how they had ended up in this crisis it was a long story that begun years ago when SABC was first taken over. Some decisions that were not made then were causing problems today. In moving forward they had to take that into account. The SABC had a commercial structure but was expected to perform as a public broadcaster. This was a schizophrenic structure with tensions between the commercial and public service realm and this was where the heart of the problem was. The CEO could be changed until the ‘cows came home’ but this would be to no avail if the structure remained the same. There had been a structural failure of the board. The CEO, the CFO and the COO positions were the key structure to success, if these positions had weak structures the business would be doomed to fail. His plea was therefore for the Committee to look to resolve those issues as soon as possible. One could not have an organisation with an acting COO for two and a half years, an acting CEO for 13-14 months. It just did not work. The key question was the model of the SABC and a new board was needed to look into this problem and issues around the funding model and so on. They needed to act decisively, passionately and swiftly to save the organisation from self-destruction.

The Chairperson stated that he thought it had been a good start to the inquiry with a healthy airing of views and wanted to suggest that the inquiry was adjourned to reconvene on Tuesday 25 June at 10 am at a venue yet to be finalised. The corporate secretary was instructed to inform all members to that effect although the Committee would also take step to ensure that all members were invited.

After a recess it was decided that, since members of the SABC delegation had to leave at 7.30pm in order to make their flights back to Johannesburg, the delegation should begin by presenting on the financial matters.

SABC Budget briefing
Mr Rob Nicholson (CFO: SABC) begun by outlining the broad structure of the funding model in order to inform the new Committee members. He continued by looking at the financial situation in a more detailed manner. Amongst the many streams of revenues the SABC had three principal streams of revenue, the first being the Television Radio and TV licences and the core problem was within television. Although sales across all units were down it was within TV that the revenues took a big hit. This was mainly due to a decrease in classical advertising due to the economic recession, a decrease in sports sponsorships and a decrease in the SABC audience pricing which was due to shift in cost per point market share to cost per thousand. Certain units had also overspent on the costs side, in particular staffing costs that were under a lot of pressure due to inflation and the need to bring in more skilled personnel. Finally there had also been an increase in content cost such as the increase in the cost of the Professional Soccer League (PSL) rights, international soccer and cricket. Also there had been a massive write down in content from 70 to 20 million which also affected the balance sheet negatively.

About the questions from Ms De Lille earlier, there had been a much slower payment by debtors due to the worsening economy. This had been aggravated by the conversion to the Standard Accounting Practice (SAP) which was necessary due to the instability of the old system. In inventory there were increased pre-rights payments for soccer and the world cup. Rights holders were asking for more money and they were asking for more money earlier. This also related to Ms De Lille’s question about breaking the PFMA 30 day payment requirement; sports rights were bought for a series of events for the duration of a year and these were paid over a period of time. Stock levels had also been increased due to the write down of stock and this was particularly so within the area foreign film due to deals signed three years ago which were in the process of being renegotiated.

The slowdown of the trading results over the first two months when the SABC came in R50 Million under budget had clearly put their creditors, such as the independent producers, under pressure. The inventory management processes also meant that either the Independent Producers would be paid less or the payment would have been delayed which was a structural problem in the industry. The number of major production houses had increased from about 35-40 to just over 400 so there was a large industry that needed SABC’s support.

Also there was a large cost attached to the DTT match play-out, since staff and equipment had to be brought in from abroad, resulting in a R360 million cost for the first roll out and another R190 million for the second half. The only current projects within the SABC were the DTT and the 2010, no new projects had been taken on and other projects had been frozen, such as refurbishments.

The SABC had also developed an austerity plan which went back into the strategy from two years ago and projects that had not delivered this year that the SABC had expected them to deliver. But there were those projects which did improve the revenue such as schedule stability; bulk content procurement sales effectiveness; better media spend on SABC platforms; and TV licence revenue collections. One of the major issues was that there had only been one licence increase in nine years. In the year that the Committee had passed the second Broadcast Amendment Act and there had been a licence increase, the revenue had been increased by 30%. TV licensing represented the second largest stream of revenue into the SABC of just under R980 million, covering about 67% of all the households who were eligible to pay TV licences. It also had to be said that a lot of the austerity measures were causing much concern and some friction within the organisation which was simply the nature of cost reduction. Many low value projects had been terminated, but a big one, that was still focused on, was the head count and business process restructuring. DTT represented an entire restructure of the SABC operations which would be a sensitive process.

More on sports rights, Formula One would decrease over the next three years. The SABC needed to focus on sports of national interest, specifically ICASA needed to understand that they needed to pay much better to secure these rights which later had to be given to competitors on shared platforms. In summary this was a programme which the SABC thought could increase its revenue enhancement over five years by R3.8 billion but that required significant support in the collection of television licences; and a cost reduction programme that would take R2 billion out of the next five years. and an uptake of between R90 000 and R120 000 of deficit this year.

They had been instructed to speak specifically on what support was required in terms of the current budget. The SABC had a balance sheet that was worth about R4 billion which was largely unleveraged; they had about R670 million in short term banking facilities. They had also made a request to the shareholder for additional working capital support. The main issue had been to make sure that they had a plan to pay back the debt that was taken on board. There had been strong indications of good support from the National Treasury and DoC and they had been negotiating with the shareholder since last year which meant that there had been no major shake ups with the banks and so on. Perhaps there had been a lapse of internal communication with regards to those issues.

There were some regulation anomalies that needed to be addressed, such as not treating national sports as local content. This material needed to be bought, it needed to be made available to competitors and this put a lot of pressure on the schedule and the cost mix. Also when local content was shown for the third time, it was considered as foreign content which made no sense since no similar rule was applied to reruns of foreign content.

The most strategic finance process was that of branding and attracting people to content. Coming back to editorial control, it was quite interesting that the more public funding one had, the more at liberty one was to determine the content. But one had to note that there was a big market volatility and if most of the revenue came from airtime sales, which at the moment was 83% of revenue, if this revenue stream caught a cold, the rest of the organisation got sick and that was actually what had happened. Generally 85-87% came from advertising, 13-14% from TV licensing and the level of funding had to be sufficient to attract a significant audience to provide competition with the commercial broadcasters. Public broadcasting created an environment where investment in local content and news would spur on competitors to do the same. To conclude, while earnings were important, the cash flow was far more important and that was the main problem that the SABC had.

The funding issue had to be addressed very quickly because in media, business could contract very quickly but would regain very slowly. There was better forecasting and planning to be done by the SABC and they were working hard around the long term content planning. Perhaps better understanding of financial indictors by line management was needed as well as better internal communication on the processes of the organisation.

Looking at the budget, one had to note that it was under an audit and was not yet finalised. The budget had been quite aggressive, expecting a 15% growth in revenue since the economic downturn had not been anticipated and this was the principal issue that had gone wrong. The other problem had been headcount increases and increases in News International. Some projects had overrun including the SAP implementation which had run over at about R42 million. The earnings before interest, tax and depreciation were in the past R478m, R282m which had dropped to -R578 million this year and a big charge of interest had been picked up resulting in a cost of R85 million which resulted in a loss of R839 million for the year, a number that might be slightly better or worse depending on the finalisation of the stock numbers, but not significantly so.

Discussion
Ms Bulbulia, SABC board member, commented about national sports not getting recognised as local content. That was since local content classification required script development and so on. Trying to get national sports recognised as local content would spark a whole new debate with the independent producers.

Ms Mampane, SABC Acting COO, agreed with Ms Bulbulia. However it was important with sports that it was made clear which sports were sports of national interest otherwise the public broadcaster would have to go out and compete with commercial broadcasters. The issue of sports was also one of nation building and it had huge implications for the public broadcaster’s costs.

Mr Kholwane alluded to the issue of overspending and wondered why this would only be dealt with on 23 June and not now. Also since there was a possibility of an upcoming overhaul of the Broadcasting Act, he wanted to get an indication of where the discussion on the funding model was going between the SABC and the shareholder. Then there were two other issues: firstly, an increase in salaries was part of the problem; why had such an increase taken place, what had informed it? Secondly, how was the decision taken to open the international news bureaus because these were not well budgeted for.

Adv De Lange asked what the discussion with the National Treasury had been about. Also he did not understand the huge increase in staff salaries. How had that decision been taken? Also it was clear that Mr Nicholson had some control over the financial issues and an understanding of what was going on. He had conducted a good and clear presentation. So when had he begun to realise that there would be a problem and what had been done when this realisation was made? Finally, there had been much talk about corruption and defrauding of funds but, looking at the presentation, this did not seem to be the case. To Mr Nicholson knowledge, had there been any defrauding going on?

Ms Kilian asked if growth in the management structure had had an impact on the wages and the budget. Also, had the CFO been aware of all the foreign programmes that had been bought but not utilised? Could he state the sums of licences that had expired before they had been aired.

Mr Van der Berg asked about the number of people working for the SABC as part of the problem seemed to be the immense increase in staff. The McKinsey Report had noted that an organisation such as the SABC should not grow beyond 3000 employees. Why then was it necessary to have such a big managerial structure, specifically considering that the SABC used a large amount of outsourcing. Was there really a need to hire a manager to manage the manager?

The Chairperson noted that Mr Nichols had spoken about a large decrease in revenue but there seemed to be an increase. Was that correct?

Mr Nichols responded that the increase was there if looked on a year on year basis, but the decrease was due to not meeting the budget requirement of an expected revenue increase of 18% and moreover the costs had been taken on in proportion to the expected revenue.

The increase in the headcount was due to the new mandate requirements in radio and news. The increase in headcount in 2006 was 280; in 2007 309 and 2008 by 303. The average increase in wages was during the same period a compound of 13%. In some cases the average wage had gone up by 70% which was a very large increase, mostly due to paying more for talent because of an increase in competition. If you had 21 platforms there was a lot of talent that required more money. There were probably some structural challenges; there had been 263 new heads in news, 72 heads in technology and about 40 in regions but the areas of concern was the growth in administration posts which needed to be looked at quite hard. The other ones were focused on delivering mandate and technology. The request had become a bit extreme this year with about 600 in news and it was realised that it was not affordable.

To turn to Adv De Lange’s question, one needed to realise that the cost and the revenue cycles were really out of sync in television. The commissioning happened about 18 months ahead and once that was done, there was nothing that could be done to stop it. This 18 month lead cycle made it very difficult to quickly manage the costs. The SABC had been doing rather well in media sales growth for six or seven years and although it was clear that one of the big problems were forecasting, there had not been the same kind of downturn in consumer spending as other areas had seen. Radio for example was still growing by 15%. They had picked up in the first quarter, which was June last year that the revenue cycle was coming under pressure. However the first quarter was unreliable due to Easter and so on, but by the second quarter it was clear that there was a problem with revenue. At this time the organisation had begun a very strong review of what could be done, which is when they had looked at their austerity plan. During the third quarter there had been some bouncing in sales and they did not have a bad Christmas, but the fourth quarter was a real disaster in terms of sales. There had been a fair amount of active management, but unlike other commercial organisations, the SABC was not profit driven so the financial response would not be the same as it would have been in a commercial organisation. They had seen that there was an issue but they had thought they could manage it. It had however been much bigger then anticipated. Although there had been a fair amount of communication within the organisation, in retrospect, it could be questioned whether people really understood what was being said to them.

Mismanagement and corruption was a difficult question. The one thing was that media was risky business because programming was always unpredictable. That had been quite well managed. Was the SABC a corrupt organisation? No. There had been some terrible, terrible events in the SABC history in the last four or five years, where executives had betrayed the trust that had been placed in them. But he really did not believe that it was the case that corruption was rampant and that everyone was out to steal from the SABC. There were a lot of hardworking honest staff at the SABC who did a damned good job every day. There were a lot of people that maybe did not work seven or eight hours per day but they did come into work every day. About ‘ghosts in the system’ although there may be a payslip issued to someone who no longer worked for the SABC but if the payslip were opened it would be revealed that nothing had been paid out. Something that could not be controlled was when someone said that they would give someone a job if they paid them a third of their salary. Now that was corruption, and there were hotlines in place and audits made to limit those types of behaviour. Nepotism probably did happen, particularly on the freelancing production sets, but he was not that well aware of it. Finally, with the adoption of SAP they had moved to one single accounting system, which would naturally drive out waste and corruption.

On the number of employees, he would concede that the SABC structure was top heavy. But one also needed to be mindful about the damage McKinsey had done to the SABC. Perhaps the most important platform of the SABC was radio and McKinsey had guttered radio’s management, particularly in African language stations. Although they were probably right in many instances, there were also instances that they were wrong about. It had to be noted that at the time the SABC was a R800 million business and today it was a R4 billion business and had grown by 25% per annum for six consecutive years. Many of the challenges that needed to be faced now were the consequences of success and not just of failure. However to say that what was going wrong at the SABC was because its employees did not work hard was offensive and judgmental and wrong. He had worked for the SABC for eight years with a lot of great people and although they did not get it right this year, they had gotten it right for the seven years prior to that.

Mr Sithole wanted to add that some of the work that had been mentioned in this process had been work that had started in 2007, which was commonly referred to as Gemini. This was the direct intervention of the Board and the management to interrogate the business in its entirety. It had been turned upside down, all areas of the business had been addressed and all aspects of the business were working in a frenzy. The organisation had not woken up today and realised that there was a problem with the headcount, or that there were inefficiencies, but this had been realised some time ago. Another question was the programmes with expired licences. The answer to this was that when procurement took place overseas it often happened that in order to be allowed to purchase prime content, one had to purchase some old content too. It could be compared to the situation of the dog and the fleas – the dog was purchased and the fleas just came along. It did happen that these fleas were not broadcast but that was not a good reason to stop buying prime content.

Mr Nicholson added that stock write-off was not the issue to manage but the acquisition of stock was the main issue. Three years ago they had paid R8 million for the rights to the ICC 20/20 and this year the cost was R77million. Similar trends were visible with the PSL where costs had risen from R19 to R150 million. However it was necessary to pay these sums to bring the big audiences and to avoid a public outcry if sports of national interest were no longer aired by the public broadcaster. Big baskets of rights were bought from the major studios; Time Warner, Sony, Universal and the like. They had cost about US$15 million a year together. Where the SABC had gone wrong was, firstly, when the basket rights were thought to have included all the new releases coming out of Hollywood but they did not; the big blockbusters were dealt with separately. Secondly they had bought too much archived content from these suppliers. One of the complaints about the SABC was that the movies were always old. So in order to close the window from seven to two or three years, they ended up buying too much. This year they had written off about R25.5 million worth of content compared to R60 million last year.

About the forensic investigations, there were two areas in which they needed to be better managers; firstly how they handled internal audits around risk management and forensic responsibility. There needed to be a greater accountability for those issues by line management and less by the Board. Secondly, about the foreign acquisitions it was clear that something had gone terribly wrong in buying some of these rights. The question was how to change managerial controls to stop this from happening again. The implementation of the intellectual property module and the customer relationship management module of SAP were the last two modules to be implemented and should result in an improvement of these issues. Much money had been invested in the system, from the balance sheet it was visible that R220 million had been invested in computer software and processors. This was a process that had had to be done in order to cater for growth, however things always went wrong when there were big changes and there were many challenges and small anomalies that needed to be dealt with and of course much discontent within the organisation. However the SABC was not a complete basket case although it was also not really well run last year, which had to be owned up to.

Ms Mampane added that the SABC still needed special skills dealing with commissioning and acquisitions. Also SABC was still producing news and sports internally although the outsourcing levels could be seen as a bit of a concern since the level of outsourcing was around 60% which was well above the 40% that the Independent Communications Authority of South Africa (ICASA) had recommended.

The Chairperson asked if anyone wanted to answer about the issue of international news bureaus.
 
Mr Mampone replied that the decision had been taken in order to secure presence regionally and globally and the decision was implemented by the previous Head of News. Budget overruns had been experienced because of what had happened within the SABC and within that context the decision was taken that some of the international bureaus had to be phased out and that instead regional hubs were to be created. He believed that the SABC was a strong regional and continental brand that needed to prevail in strategic markets. In order to do so they needed to have some form of international presence although this had to be within its financial capabilities. To expand internationally had been an important decision that had to be pursued but it had it also had to be made financially viable. Also some of the budget overruns that were experienced could have been aggravated by the Dollar/Rand Pound/Rand exchange.

Another issue that needed to be looked into was vendor management. Clearly it was a managerial area that needed to be examined in order to ensure cost efficiencies around the suppliers. These strategies would provide much savings. Having said that, there was also a short term plan which was called the 180 Day plan which aimed to ensure that there was a strategy to improve the number of debt collection days, which would in turn affect the sales effectiveness in the market, making sure that the pricing models that they came up with, were in fact helping to drive the revenues. Also the cash constraints were increased by the consulting work the SABC had been forced to hire in very specialised areas, however these areas were currently being trimmed down. The economic meltdown had not been anticipated. Lastly it needed to be reiterated that one needed to be careful when one talked about the R800 million deficit. The SABC lost money that they had never had in the market, they had not lost any market share. The real issue was the half of the R800 million that was not due to the economic contraction but in fact was a budget shortfall rather than a deficit.

Ms Gilwald wanted to pick up on a few points not yet addressed. It was clear that a lot of big decisions that had been made such as the increase in headcount, the establishment of international news agencies and the procurement of foreign content had all been made in more buoyant economic times. However, the austerity plan provided an opportunity to create a far more efficient and lean organisation and perhaps something good would come out of this crisis. From the Board’s point of view, there had been very active committees dealing with finance and risk which had worked with management in the setting up of a whole new system. There had been many areas that had been managed loosely form a Board’s perspective, but perhaps not to the level of a crisis but rather of not having had sufficient caution. Looking at the international news bureaus, for example, the motivation behind these was very good, very much in the public interest to present Africa to the world from an African perspective and to get the world to understand Africa from an African perspective. But clearly there had been areas of mismanagement and overspend, which had already been addressed by the new processes.

The Chairperson interjected and asked what the motivation was for setting up a news bureau in some obscure country in Latin America?

Ms Gilwald said that the implementation and placing of the bureaus did come before the Board and that the bureau in Jamaica had been motivated and discussed and there was a general feeling that South Africa needed something there. However it was the first to go when the review was made. So there were bad choices although the principle was a good one. The issue of the salary increases was something that had concerned both the current and the previous Board but it was a complicated matter. The Board took responsibility for the increase in executive salaries but in principle it approved the increase in salaries elsewhere and then the line managers would make the final decisions. The principle guiding the increase were studies that had been done to benchmark SABC salaries against industry salaries, which was a good principle to ensure that skills were retained and attracted. The Board together with senior management had indicated that they would forgo new increases.

Ms Magazi said that it was a pity that Mr Mampone had left the room. It seemed like he was making light of the R800 million deficit but there was no smoke without fire. All the current commotion would not have taken place had there not been any real issues. She asked when the SABC had done its study to determine the feasibility of an international bureau, what assessment had they used and how was the decision informed? They needed to ensure that South Africa really benefited from this in order to make the bureau feasible.

Mr Kholwane asked what exactly the financial situation was. Was there a financial problem or simply a budgetary one? And once again, why was this not dealt with now but only next week. Also, it was clear that the implementation of the bureaus had gone wrong. Had anyone been held responsible for the failure to implement that particular strategy? What had the Board done about the situation?

Mr Radebe said that there were a few aspects that kept on propping up. Mr Sithole had talked about skills from overseas covering the skills shortage, but were skills development strategies implemented to ensure that the organisation ran smoothly in the future? Also when skills were imported, did the SABC make sure that the skills were transferred? About the old movies, why procure old foreign movies and not old domestic movies, so that the country could focus on its own culture. There were strategies moving forward for TV licence collection, what exactly were these strategies? Looking at the equipment bought abroad, did it generate profit being used as intended or did it collect dust due to a skills shortage in operating it? Finally it was important to certify that all South Africans had TV coverage without a DSTV decoder; did the SABC have enough stations to reach even the scarcely populated rural areas?

Mr Sithole answered the delegation was now being asked questions on SABC strategy. Although they had wanted to present their strategic report, they had not been given the opportunity to do so since last year. Some of the questions were answered in the presentation so perhaps it would be more effective for the delegation to give the presentation.

The Chair agreed and suggested that questions should be confined to financial issues and the delegation could return and do the presentation next week. The documents had been tabled so the Committee could look at them and interrogate the delegation then.

Mr Nichols said that he had missed out Adv De Lange’s question about the National Treasury and he just wanted to be clear that the National Treasury had not made any promises. The SABC had a thorough engagement with them and with the DoC and their officials were assisting the SABC in finding a solution to the cash flow crisis. Perhaps the delegation should also take the Committee through the full funding behind the SABC including the DTT, but this was something he insisted they did behind closed doors. Such a presentation could possibly explain from where some of the numbers in media had come and the panic.

To come back to the news bureaus, there needed to be better managerial controls for news from the group executive. There seemed to be a news business which said that it was the most important part of the SABC and everything else existed just for the news department’s benefit. This of course created ructions within the organisation and unnecessary tension. When the business plan had been put together for the international bureaus it focused on bringing African news to South Africa, which was an attempt to bridge the gap that existed between South Africa and the rest of Africa due to history. Only 50% of the plan was accepted but the news people went ahead with implementation in line with a 100% acceptance of the plan and a 100% of the costs. He had felt that executive management had been ignored and he was also not aware of there being any Board mandate given to allow this. Some of the news bureaus were too ambitious. The issues were about what to do with all the content and securing airing for it. But it must be made clear, if South Africa wanted to be taken seriously globally, they needed to have a news presence globally. The country had to have a voice in order to be heard. However the programme had been too ambitious. The problem was that there was an R800 million loss which was a very big problem. The overdraft and the cash reserves had been utilised and discussions were ongoing with the National Treasury. It was a big problem that required everyone to focus on saving the SABC and to stop fighting.

About the international technology question, every plan that went forward had a skills transfer programme. Around DTT they needed foreign skills because there were simply no such skills domestically. After the process was finished, there would be such skills and perhaps they could even be utilised to set up similar systems elsewhere in Africa. There was a very active skills transfer around all the technical projects. This could, for example, be seen with the SAP implementation.

About network coverage, there was a programme in place for low-power transmitters for the analogue network, which had so far been deployed at two sites. However there were 3.6 million South Africans that did not have any network coverage at all and this could not be allowed to continue. The programme needed to be rolled out more aggressively.

Finally, Mr Kholwane’s repeated question about why the rest of the financials would be dealt with on 23 June had to be answered. This was because the report needed to be consolidated by the auditors first to ensure that no mistakes had been made.

Ms Kilian asked if any costing had been done on the international bureaus before the programme was accepted. Also were there any long-term contracts that the SABC now needed to get out of? Finally, was there a benchmark for news that had to be aired from a bureau to ensure its feasibility?

Mr Mkhize wanted to ask further questions on the budget next week, but he wanted to understand the working relationship between the SABC and the DoC.

Mr Nicholson answered that costing had been done for the bureaus. The only long term contract that they needed to get out of was rental of accommodation in Nigeria. He could not answer the questions on benchmark requirements; perhaps someone from the news department needed to do that.

Mr Sithole said that the relationship with the DoC was very, very good, especially with the department of stakeholder management. There was a passionate engagement and scrutinising of the work and meetings were often called. From where he was sitting, there was a good relationship although it had been worrying that they had not received any response when crying for help last year but they hoped that this situation would never be repeated.

The Chairperson tied up by joking that the Jamaica office had never had anything to do with news but everything to do with marijuana. There was no benchmark of coverage so the correspondents were just walking around trying to find news, coming home dazed without any stories.

Mr Van Der Berg said that he just wanted to hear something positive from the SABC; how long would it take to turn things around at the SABC?

Mr Nicholson said that ‘it would take three years of bloody hard work’. Unfortunately it could not be turned around quickly. In media one could mess up in one day and it would take 18 months to sort it out. Having said that he noted that members should watch the Confederations’ Cup. It would be coming through from two HT Sony vans, at R85 million each fully equipped by South Africans which was skills transfer. There was some good news. The future held much hard work for the SABC but South Africans knew how to work hard.

The Chair thanked the SABC team and particularly the two Board members. It had been a useful session, now it had been established how the process would be continued on 23 June. He was hoping that all board members could be present at that time. The Committee wanted to come to a decision by next week so the 23 June meeting would be important. The Committee did have the power to summons board members but it did not want to go that route and was instead making a constructive appeal for them to attend. The SABC delegation would come back to be interrogated on the strategy report and would present on the financials behind closed doors. This wanted to be done before the current term closed.