SABC Strategic Plan 2009/10

Meeting report

SABC Strategic Presentation
The Chairperson welcomed the South African Broadcasting Corporation (SABC) Executive Management and the two SABC Board members that were present to the meeting. He stated that the Committee had received apologies from seven Board members who said they were unable to attend due to prior engagements. Today’s meeting would begin with a presentation by Mr Sipho Sithole, Head of Group Strategy and Risk, on the SABC strategy, followed by a presentation by Mr Rob Nicholson, Chief Financial Officer (CFO), unpacking in more detail the financials presented on the 18 June.

Mr Gab Mampone, Acting Group Chief Executive Officer (GCEO) at the SABC wanted to begin the meeting by making a statement to the Committee. He said that he had worked under three different CEOs and boards, some with good leadership qualities, some with poor leadership qualities, some where great ideas had been ignored and some where great ideas had been wrongly implemented. However, he was there today representing the many honest and hardworking men and women, thanks to whom South Africa could wake up to Morning Live every morning without fail. Thanks to whom the Confederations Cup had been brought live to the people around the world and whose efforts had been fully recognised by FIFA and the broadcasting world at large. He represented a team who made sure that that the daily dramas and soaps were on schedule every night at the right time. They were the ones who got SABC to work, crisis or no crisis, irrespective of good or bad leadership.

After working at the SABC for a decade he had good grounds to say that he knew what he was talking about. Like any other family, they had their fair share of rotten apples who tried to affect the rest of them with their deadly virus. The wheels of the SABC might be coming off, but it was only the SABC board that needed tighter bolts, not some crazy nuts. The men and women who rushed to work every morning were parents, guardians, brothers, sisters and the SABC was a place where they could plan their and their children’s future. The plans they were presenting today had been put together by the only people who cared about the SABC’s future endeavours and he could assure the Committee that those experts were currently employed by the SABC. Those were the people who made sure that the SABC did not sink on their watch and they were the ones who he trusted to bring about the desired change at the SABC rather than relying on consultants. Now was the time for them to present the strategy and the future plans as directed by the team of experts at the SABC.

In conclusion it was a great pity to learn that most of the representatives who complained about the late payment by the SABC were employers and not employees. Many of the production houses in South Africa were owned by a few who ruled what production was coming in and out of the SABC. If they were to correct the wrongs of the past they needed to assess how independent production houses were structured. An illustration of what was happening was that young script writers got productions going at production houses, giving ownership of the scripts to the house without realising that it gave the house the right to change it in whatever way they pleased. Stories were often directed by someone who had nothing to do with the writing of the script and the stories were chopped and changed. Sometimes they were deliberately changed by those who opposed the majority rule in South Africa. This had to stop. The portrayal of the black man as a drunk, a murderer, a drug addict, a rapist and a gun toting corrupt individual was still prevalent on the screens. The introduction of regional TV would give the youth more power on the production side. South Africa had not told its story yet.

He wanted to take the opportunity to appeal to the Committee to take the time and listen to the delegation and how they saw the way forward for the public broadcaster. For them to implement the plans and strategies presented today they needed strong and fair leaders at the board. Finally they needed to recognise the challenges, such as the funding plan and content mix, which were at the core of the problems at the SABC. Today they needed to comprehensively discuss these issues. Further, the issue of the Digital Terrestrial TV (DTT) roll-out was another critical area that needed to be discussed because it was a key issue under funding, as was the News International. Last but not least they needed to look at the operating model of the SABC. Once all these issues had been thoroughly dealt with they would know exactly what needed to be done with the public broadcaster. With that he handed over to Mr Sithole.

Mr Sithole stated that he had joined the SABC in June 2007, at which time much work had already been done by the then GCEO Mr Mpofu. He had constructed the SABC vision of ‘Citizen Empowerment’ in 2005/06 which since had been recognised around the world in public broadcasting circles. The mission statement, emanating from the vision was thus people centred and the core values of the SABC were ‘conversation and partnership’: partnership between the SABC and its shareholder and its stakeholders to create a new future together.

The strategy had been built on the values, vision and mission and was basically an unpacking of the concepts. To this effect consultants had been brought in, because to reflect the diverse citizens’ stories correctly without stepping on any toes was not an easy task to complete with only three TV stations available. In radio it had been somewhat easier since they had 15 public service stations which represented all citizens, covering topics from religion, art and entertainment, as well as three commercial broadcasting stations.

The drivers for the SABC action were the SABC public service mandate; the new competitors; the new licences; the new digital technologies; the mandated DTT rollout timeline; and the loss of audiences to other media. The war for citizens was intensifying since pay TV, which had historically targeted higher income white audiences, now moved towards middle income and black audiences. The issue for the SABC was that when audiences moved to pay TV they still received all the SABC content without paying TV licences. The change in the market was largely due to an increase in households that could afford pay TV, a number which was predicted to rise by 156% from 2006 to 2012. The increased competition also increased SABC costs since there was more demand on the supply side, resulting in amongst other things production houses becoming more powerful and content becoming more expensive.

In this light, the strategy that the SABC had hoped to embark on in 2008 was based on analyses in the area of the external environment; the core processes; and the people processes. This had resulted in 12 top priorities to focus on when refining and executing the strategy, which in turn led the SABC to embark on eight work streams for the strategy deployment. These were the SABC value proposition; the strategy execution, the refinement of core processes; the operating model; the development and alignment of leadership; the organisation and the people performance; the stakeholder management; and the programme and change management.

Each work stream had its own clear objectives, based on which a clearly measurable benefit case had been identified. For example, the SABC had to ensure that they offered appropriate content on each platform to attract both audiences and advertisers. However, this was an anomaly in that the SABC was a public broadcaster with content mandates which had to rely on advertising revenue to a very large extent. A process that was reformulated as part of the strategy was the contracting. The goal had been to streamline the contracting processes and cut the contracting times. Long and unstable contracting processes could result in the delay of the production, which in turn resulted in schedule instability, which was costly due to its impact on advertisements. Another part of the strategy was the goal to penetrate the SABC values throughout the entity as a whole. Right now SABC staff were seen as corrupt, slimy, ugly fat cats. This was not what they wanted the SABC to represent; the values of citizen empowerment and conversation and partnerships should be amplified throughout the organisation. In conclusion, if all the strategies were implemented according to plan they would result in revenue increases for the SABC of R401-R602 million. The benefit case had been further refined. If they did what they intended to do down to the smallest detail (although this was not so realistic), the consolidated benefits would reach a R5.6 billion in 2012-2014. Already in 2010 the benefitswere predicted to be R419 million.

The overarching vision of broadcasting for total citizen empowerment and the vision of building an emotional bond with their audiences had led the SABC to identify five groups of audiences which helped SABC understand what their audiences wanted. The groups were: the now generation; the global citizens; the nation builders; the rooted; and the survivors/established. Core content relating to each group had been categorised within all genres such as drama, movies, sport, sitcoms, soaps and news. In conclusion the new multi platform positioning was constructed to speak to all the audience segments identified; with audience focus penetrating programming, planning, channel alignment and platform positioning.

To deliver on the strategic operations the SABC was facing challenges. The financing of its operations was a serious challenge; to rely on advertising revenue and still deliver on public value was not easy. The misalignment of systems and processes to deliver on the core business of the SABC was being interrogated. Further, in order to be relevant they needed cutting edge broadcasting which needed to be funded. The growing cost of content was an ever-present challenge, and so was the retention of the audience and market share. Finally launching a news and sports channel in preparation for DTT was a challenge.

Much had been said about the R800 million deficit and in light of this, one needed to discuss whether the SABC was a content or a profit driven organisation. Last year they had done much more than lose money, activities which were not easily quantifiable. They had focused on the tracking, development and retention of skills relevant for the new broadcasting environment. In doing so they planned to establish the SABC Academy. They had also progressed in securing a leadership pipeline, promoted nation building, promoted the African renaissance and planned for the DTT migration. Also in ensuring universal access to TV/radio signals the SABC had funded and rolled out low-power transmitters - an activity that was the responsibility of another government entity.

That said, it was imperative to close the funding gap and in doing so the collection of TV licences was an important factor. The SABC requested that they should be able to collect TV licences from pay-TV operators, that the licence fees should be free of VAT, and that the fee (which had remained the same for nine years) was increased to offset inflation and other costs in collecting the fees. A study had showed that the average household was willing to pay R20.8, while the current average payments were R16.1. It was also important to note that if the government would compensate the SABC for the mandated concessionary licences, the SABC would have received an additional R131 million in cash. Finally it was proposed that a broadcasting levy be issued on the sale of all television/radio receiving equipment. The SABC had a public mandate to deliver on, which was costly and which also made it difficult to attract advertising. Legislative support in this area was imperative.

Discussion
Mr B Holomisa (UDM) said that looking at the documents that had been supplied by the SABC workers he was wondering if it would not be more fair if the presentation was postponed and they instead asked the executive to respond to the allegations. He was not comfortable being addressed by the Executive Management on the strategy when those serious allegations were hanging over their heads.

Ms P De Lille (ID) had some questions about the process of the strategy development. Firstly, was this a new strategy? She had not heard anything about it being an improvement on the previous strategy. Secondly, they had used consultants; what had the cost been, would consultants be involved in implementing the strategy, and had there been any skills transfer? Thirdly, in developing the strategy, had there been any consultation with the stakeholders? Finally had there been an agreement with the board on the strategy?

Ms J Kilian (COPE) said that although they had been told a great deal about the strategy, they needed the follow up by the CFO on a more hands-on plan for the direct changeover. She was concerned that there would not be enough time for that since the CFO had to leave so perhaps they should leave the interrogation until after the financial presentation.

Secondly, she agreed with Mr Holomisa that the allegations made had been very serious and she wanted to inquire into the implementation of the Public Finance Management Act (PFMA), but she did not think that this was the right time to do so; perhaps the Chairperson could guide them further on that. With regards to the presentation she had two questions. Firstly, could they expand on why the SABC was losing audiences, and secondly, since the TV licence fee revenue was considered too small, what was the rate of retrieval and had they considered how to improve the level of retrieval?

The Chair responded to the members concern about the allegations that had been made and said that recently allegations towards the SABC were flying fast and furious. What the Committee needed to do was to put them all in one basket and deliberate on them, but that should be done at another time. The Committee could not itself investigate the claims, but they could order an investigation. It would not be fair to ask the Executive Management to respond to specific allegations without first preparing. It was clear that the issues could not be swept under the carpet, they had been noted, but for now the Committee should focus on the presentations and interrogating them.

Mr Gab Mampone addressed Ms Kilian’s question and said that they did not have a shortfall on the TV licence retrieval. In fact during the economic meltdown, the TV licence retrieval had overachieved in terms of the revenue projections. The issue was that the licence fee had not increased in the past eight years which was a problem considering how critical the revenue from licensing fees was in developing content. The difficulty was that they could not increase the rates on an annual basis and they could not ask pay TV audiences to pay their TV licences. Hopefully with the support of the Independent Communications Authority of South Africa (ICASA) they would be able to address those issues. About the loss of audience, it was important to note that they were not losing audience shares, they were losing revenue shares. The total market share of revenues had also declined terribly during the past financial year. The problem they were faced with was the difference between the public and the commercial audiences and they had to decide if they were going to pursue commercial audiences at the cost of delivering their public mandate or pursue public mandate at the cost of retrieving advertisers. In essence this was a question for the country in terms of what it wanted to do with its public broadcaster. He handed over to Mr Sithole to answer Ms De Lille’s question on the consultants.

Mr Sithole responded that the consultants were not involved in implementing the strategy, but he would let Ms Phumelele Ntombela-Nzimande, Chief Peoples Officer (CPO), deal with those issues in more detail.

Mr Nzimande said that they had had skills transfer from the consultants. In every strategy cluster there had been a senior member of the management team working alongside and with the consultants. The consultants had only been deployed for a very specific time frame and had exited on 11 June. Once they left the staff members that had been part of the different strategy developing teams retained the skills and headed the implementation of the strategy in their specific areas.

Mr Mpofu added that in 2006 the SABC had had a very bloated structure, ill equipped to respond to the constant change in the broadcasting landscape. The strategy development had thus started then already and it had been presented to the old board. Six months had been spent on investigating the internal and the external factors surrounding the operations of the SABC. Towards the end of 2006 a two day meeting had been held with the old board, which at that time approved the strategy. The initial development of the strategy had been done without the help of consultants – the strategy was entirely home grown. However, once the strategy was formulated they needed help on how to implement it. Consultants had been brought in at a cost of R50 million to develop an implementation strategy. In August 2007 the consultants presented the implementation plan to the board and it had also been approved. In the beginning of 2008 they had been on the verge of flying the implementation strategy. Everyone knew what had happened since.

The costing was as followed; when they presented to the board the worst case scenario was that the implementation of the strategy would save the SABC R450, which meant that it made sense to spend R50 million to achieve this. Another point was that they could not bring in consultants if they were not ready to implement the strategy internally. That was why Mr Sithole had been brought on board to the SABC. He had had daily contact with the consultants making sure that everything was on track.

Pf A Gilwald said that the genesis of the strategy had come from the previous board, although since some of its members continued to serve on the new board there had been some continuity of the strategy endorsement. It also had to be remembered that the reason the budget and the strategy deadlines had not been met was that the new board was appointed very shortly before those deadlines, in spite of a request from the previous board that the Committee made the appointments earlier in the year. The Executive Management had presented the strategy to the board shortly after they presented the budget. Due to the board’s concern about the deficit budget they became worried about the implementation cost of the strategy. There had been much support for the strategy and board members had been concerned about the fact that the strategy had never been presented to the Committee during the last year. The Board’s main issue was that although the strategy was predicted to lead to savings, those savings were not visible on a month to month basis. The savings had however been incorporated into the budget and the SABC was still very deep into deficit. As mentioned during the inquiry there had been very specific reasons for that such as problems with the funding model and so on, part of which the strategy had been supposed to deal with.

On the issue of consulting the stakeholders; a Public Value Conference aimed to take SABC’s new vision home to the people of South Africa had been discussed for a long period of time there, but due the crisis within the SABC this never took place, just as many other important things that ought to have happened.

About the migration of audiences; it was a good idea to focus on the strategy now and not conflate it with the other issues. The issue of maintaining a public broadcaster in the competitive environment was crucial and very difficult. As a regulator the Committee should note that the regulatory problem was not limited to mandates in content, it was also an issue of creating a fair competitive environment. To throw money at the institution would help, but it would not solve the problems. South Africa needed a broadcasting ecology that spread public broadcasting values and mandates across the environment. No one would be willing to fund the public broadcaster unless it could compete with other broadcasters for the audiences. A very nuanced regulatory framework was needed, which would allow the SABC to compete commercially during prime time and account for special needs and interest groups on the edges of that. It was not an option to un-fund public broadcasting, especially in light of what had happened in Brazil for example, where only one or two percent of the population now enjoyed public broadcasting.

Looking at licensing and the role of the public broadcaster in the digital environment illustrations of successful, less successful and correctional occurrences could be found in Britain and in Spain. If one, like South Africa, had a very large public broadcaster that institution was crucial to the successful implementation of DTT for all viewers. The skill that the SABC had within its licensing department, for example, was something that could be leveraged within the digital environment. It was important to realise where the SABC had skills and where there were skills shortages.

Mr Andile Mbeki said that he wanted to echo the words of Prof Gilwald. The strategy had been formed jointly with the old board and had been adopted by the new board and endorsed by both. The strategy was not new; there had been attempts to present it to the Portfolio Committee last year, but those attempts had never been realised. Looking at the funding of the SABC it was difficult to quantify the value that the SABC brought to the country. They needed to come up with a document that could be presented to the shareholder, the National Treasury and also to the House. On an annual basis they had adopted a habit of having summits conducted by the CPO’s office holding workshops on public value. During last years summit they had wanted to re-hash the existing public value document, but due to the turmoil the summit never took place.

Most of the aspects that presented financial problems within the SABC were a manifestation of the differences between the public mandate and the funding model, but more of that would be shown during the presentation of the financials.

Ms R Morutoa (ANC) said that she was happy that the allegations were to be dealt with at another time; it left her more confident to ask her questions. When they spoke about the operating model, when was this to be implemented? On the platform positioning, were the uneducated rural citizens considered? Looking at the strategy ambitions beyond 2010, had the SABC prioritised certain groups, and had they focused on those who could not afford other channels? Finally, in the summary of the presentation on the citizens’ respondents, where were the indigenous people and women’s rights represented?

Ms M Magazi (ANC) said that the presentation on strategy was not bad. It was good that the SABC attempted to work for the citizens. Her question related to the establishment of the SABC Academy. Had they consulted the old or the new minister about this? It was important that the new administration contributed to the establishment of the Academy. Also, was there some kind of relationship to the National Electronic Media Institute of South Africa (NEMISA) which also trained people in broadcasting?

Mr L Mkhize (ANC) was wondering who was developing the concept of the SABC academy; was it done internally or externally? Further, he was concerned about the shortening of the turnaround time on contracts. If the shortening was motivated by a general will to increase efficiency then it was a good thing, but it had sounded as if the turnaround time was shortened in order to address scheduling instabilities. If this was the case it was the wrong way to address the problem, which lay in planning and not in contracting.

Ms W Neuhoud-Druchen (ANC) said that she was very sorry to say that the picture the SABC painted of the South African citizens had left out one large part of the population: people with disabilities. She had been part of this Committee when formulating the Broadcasting Amendment Act which said that the SABC had a responsibility to make programmes available to those who were deaf and blind. That issue had not been mentioned at all in the presentation. She was currently encouraging deaf people to rather watch pay TV such as DSTV since 80% of their movies were accessible to deaf people. DeafSA had begged the SABC to make their programming accessible but nothing had been done. When the SABC completed their DTT migration, would their programmes be accessible to deaf persons? The election debate had not been accessible; the deaf population represented a big part of the constituency which wanted to be part of the democratic processes; which wanted to know what the President said in his inauguration speech. Looking at the 2010 FIFA World Cup DeafSA had been asked by international organisations for the deaf if the broadcasting would be accessible.

The Chair wanted to know if they had modified the strategy plan to take into account the current financial crisis. Had the strategy been costed and was it within budget?

Ms Kilian pointed out that from the presentation it was clear that the SABC Executive Management had been aware, for the last two or three years, that the mandate would lead to a shortfall in financing. What had been done to regularise all activities. Had wastage audits been taken aboard?

Ms Nzimande said that she would answer the questions relating to the Academy since it fell under her area. It was a young vibrant management team from the internal Human Capital Services’ Learning and Development Department that were in charge of consolidating the concept. They were working in partnership with NAMESA and with the Media, Publishing Seta (MAPSETA) as well as higher education institutions. Two weeks ago a memorandum of understanding (MOU) had been signed with NAMESA focusing on very specific skills around animation. The Academy addressed two areas; firstly it was consolidating a skills pool internally for the SABC, focusing on both skills that were unique for the public broadcaster and also those that were on the cutting edge of the technological development. Secondly, since the SABC as the public broadcaster was the biggest player in the broadcasting environment its skills strategy included injecting skills into society at large. The SABC was responsible to contribute to the skills development within Information Communication Technologies (ICT) at large. Overall they were looking at aligning with the priorities of the new administration in terms of heeding the call of the developmental agenda of the country.

Mr Mbeki wanted to add to that and said that the board and management had discussed how the SABC could contribute to the development of broadcasting skills. Those skills were highly specialised and a graduate from a higher educational institution with a relevant degree would not be prepared for the working environment. As part of their Corporate Social Investment they had identified three tiers to work with. The first one was SABC funded sponsorships of students so that they could get continuous exposure into the broadcasting environment. Secondly in Mr Mbebe’s area, when they invited people from the public it had not been enough to expect people to come to the SABC; therefore they had taken a resolution to go out and run national workshops and structure the pitching process twice a year. Thirdly they had to accept that the SABC was used as a springboard and they were happy to contribute to skills development. However, in the pool of the portfolios there was a gap in skills and that was where the notion of the Academy came into play. It was work in progress to be carried out alongside the other educational institutions. It was part of SABC’s value contribution to the country.

Mr Mbebe, Group Executive of Content Enterprise at the SABC, addressed the questions on contracting. He said that the reason they were concerned with the contracts in the strategy was to ensure that they were constructed efficiently and also to ensure that it was easy to do business with the SABC. In the media environment there was a need to respond to issues as they came up. Secondly many media companies have Standard Terms of Trade (STT) which meant that other contracts become minimally used. The SABC commissioned over 1000 productions a year locally; that was more than five contracts per day. Finally, the SABC strived to develop individual talent and small production companies who could not afford to have lawyers involved in the contracting; it was therefore important that the SABC made it easy for small companies to do business with them.

The SABC existed in an environment that was highly competitive. Before the SABC used to be able to demand that it contracted on its own STTs but in the global environment they were a small player and forced to accept the other parties’ STTs. An example was the FIFA World Cup rights; when SABC lawyers had tried to make a change in the contract the FIFA lawyers had said that it would cost them more to change their contracts across the board than it would benefit them to do business with the SABC.

Looking at the accessibility for deaf persons, they were in the process of addressing the issue; almost all soapies and local drama now carried subtitles. The next challenge would be to offer subtitles in different languages, but that was something that would be much easier to do in the digital environment where different language subtitles could be created and the preferred language could be chosen by the viewer. Secondly, when it came to content the SABC adopted the principle ‘Nothing about Us without Us’ which entailed that if the screenplay included a deaf or a otherwise disabled person, the person taking on that role had to also have the disability. It was very important that the issue of catering for the disabled was intervened in, and the solution lay in implementing DTT, which would allow more content on the screen. Finally when it came to realising the accessibility the SABC was commissioning two types of decoders, one of which was disability friendly. The specific features of the decoders had been requested and they hoped to pilot the system before the DTT launch. They would also sport audio descriptions for live TV, which would solve the problem of situations such as the State of the Nation Address and sports events. It was critical to ensure that the specifications of the decoder included those needed to enable disabled service.

The Chair said that about the contracts; no one could dispute the value of efficiency, but how was integrity ensured? If there were shortcuts in contracting this inevitably opened up for irregular practises. Could the board please answer that?

Prof Gilwald said that this board had been particularly seized by allegations of inefficiency and unethical behaviour throughout all levels of the organisation. She wanted to point out that it was essentially a lack of control that opened up opportunities to act unethically. The Standard Accounting Procedure (SAP) addressed some of these inefficiencies relating to contracting; if a contract had not been correctly completed then there would be no payment. SAP represented a tightening of the systems, however when it came to particularly large or critical contracts the management would still be able to seek a mandate from the board to negotiate.

She further felt duty bound, in the absence of Ms Lagadien, to admit that woefully the SABC had not paid sufficient attention to the disabled. The DTT migration presented many opportunities for improvement when it came to content, but they also had to work on the accessibility to the institution itself.

Turning to the Chair’s question on whether the strategic plan had been modified to deal with the financial crisis; it had in terms of formulating the austerity plan and in terms of certain areas of revenue generation. However, the benefits of the strategic projects had not yet materialised. The key to the problem was to get the austerity plan to work and to generate those revenues.

Turning to the allegations of corruption and inefficiencies again, this time relating to contracting; the board had been very concerned about the allegations and, together with management, embarked on implementing a set of governance policies. Management had worked on a governance risk strategy, which was quantified by the board, and which was also extended to include the management and the board itself. This process was still ongoing. The audit committee had been implemented with such rigour that it had become potentially damaging for the moral in the institution. That said, some irregular behaviour had been picked up and was now in the midst of being criminally investigated. Unfortunately this was the nature of very large organisations, especially while systems development. 

Mr Mbeki said that contracting was one area that, no matter how diplomatic or strategic one was there would always be a problem. There had been tendencies whereby service providers had managed to do some work for the SABC and to get paid without having contracts. Whatever reason or excuse was provided for such occurrences it was not sufficient since it was an unlawful exercise. It had contributed immensely into the organisation having to embark on qualified audit reports. The board had in certain instances found the organisation committed into contracts that they could not get out of, ending up instead trying to get some value out of the content.

This was a very bad practice that had been addressed within three processes. Firstly a new procurement policy had been put into place. Secondly the Governance cluster, consisting of the audit, legal, procurement and company secretary offices had been directed to deal with governance issues which aimed to ensure compliance with the law without frustrating business practises. Thirdly the issue of off-putting systems had been dealt with, a practice that had been very cancerous. In some instances it could happen that as part of the procurement policy exceptions needed to be made in terms of live activities such as sports and news. However, once the company had been used it should be arranged into the SABC databases. This would enable a flexible sourcing of suppliers operating within the procurement policy. To sum up there was some backlog due to previously bad practises that still had to be dealt with, but going forward proactive initiatives had to be taken so that the board did not have to play the policing role. With SAP in place it would cut out the generally bad practises.

The Chairperson stated that it seemed as if the procurement policy was in place and operation. Could the board please get a copy of it? Where internal audits had been carried out and where irregularities had been found, had disciplinary action been taken? Could they get a report on the specific cases, if they had been concluded and if there had been any consequences? Finally, could they get a list of all the backlog cases that Mr Mbeki had mentioned?

Mr Mkhize asked if the tendency was no longer happening due to the implementation of the SAP; could they get a date of when the practice should have been capped.

Mr Mpofu said that he quickly wanted to answer the Chair’s question which seemed to be about acknowledging the problems of the past and dealing with them. What needed to be done was to put the systems into place and to implement them aggressively. When he joined the SABC in 2005 there was no risk or procurement committee. Once that was identified they were immediately implemented. It was not possible to run a R5 billion company without these divisions. That in itself did not mean that they would catch thieves but the framework was correctly set up. The establishment of the governance cluster ensured that issues of governance were permeated throughout the organisation. This ensured PFMA compliance and accountability. That had been a major revolutionary change within the organisation. The results and the benefits from these types of interventions would become visible in time. The governance cluster was crucial because having the head of the legal, audit, procurement, risk and company secretary offices together ensured a constant evaluation and follow up in the area of governance.

Mr Kholwane said that he accepted the response by Mr Mpofu but the SABC was not operating under normal circumstances. All over the media there was a perception of looting happening within the SABC and this notion was adopted by the public. It was important to get information that related to the allegations from unions and board members, so that they ensured that nothing was swept under the carpet but that everything was dealt with openly. It was crucial that they dealt with this now, to deal with the guilty and to clear the innocents from suspicion.

Ms De Lille asked why the Committee had not picked up on these things earlier. She agreed with the Chair in requesting the reports, but why had they not been received earlier? Had they been deliberately kept away from Parliament? In terms of the oversight duties, to prevent things like this happening in the future, it was imperative that it was established if the reports had been submitted and if they had not, why not?

Ms Kilian said that she shared Ms De Lille’s concerns. She felt that they needed the auditor general report from two to three years back to investigate what had happened. In terms of oversight they needed to establish the weaknesses in the financial management and the non-compliance with the PFMA. The serious conflicting allegations of senior management; in terms of the PFMA section 50 they needed to make a declaration of businesses that would be similar to where they were involved. There were also provisions in the PFMA allowing individual board members to come forward and disclose to the accounting authority issues that they thought should be further investigated. The Committee needed to establish if any of this had been done. The reputation of the whole institution was now at risk; if individual members had been held accountable for their wrongdoings that would have saved the institution as a whole from doubts.

Mr Sithole said that he was getting confused and frustrated; five questions were unanswered and it was confusing because now they did not know what question they were dealing with.

The Chairperson said that they were going to adjourn for lunch. When they came back the board members and Executive Management would be given an opportunity to answer the questions.   

As the meeting continued Executive Management was directed to answer the outstanding questions on the strategic plan.

Ms C Mampane, acting Chief Operations Officer at the SABC, began by responding to Ms Morutoa’s question and said that catering for women and the rural population had been addressed on the DTT platform where there had been pilots aiming to capture issues relating to these groups. Women were conceptualised within the general segmentation of the, the now generation; the global citizens; the nation builders; the rooted; and the survivors/established.

Mr Sithole said that when it came to the rural audiences and platform distribution, the group was recognised and the SABC continued to develop programming for those in a rural setting. Further considering that about three million people did not receive a TV signal in South Africa, they had used revenues collected from TV licences to fund the roll out of low power transmission networks. During 2009 and 2010 a 100 low power transmitters were planned to be rolled out and it was also planned to ensure that in 2010 all households would receive radio signals. In the multi-channel environment the population segment called ‘survivors’ were those in the remote and rural areas and they were not forgotten. The SABC wanted to tell their stories in the village setting.

Looking at what had been done to adjust the strategies in light of the financial crisis four main areas had been considered. The areas that would be investigated were the sports channel and the investment in sports rights; the news international; the DTT migration operation; and finally the operation model. Furthermore, risk to performance areas had been identified as challenges within the turnaround plan and those were being addressed. About the operation model, it had been informed by the strategy exercise ever since 2006. After the strategy analysis they had realised that the strategic action plan and ambitions would not be fulfilled within the current model. The viability of the division between Public Commercial Services (PCS) and Public Broadcast Services (PBS) was under question. Could that model still sustain the SABC and how would it work under the multichannel environment? They had ideas of what to do but they had not yet engaged with the board on those issues. Looking at the efficiency and the structure it needed to be assessed if there were instances of duplication. The SABC needed an operation model that positioned the institution correctly as a public broadcasting in the commercial environment.

Dealing with the challenge they were facing in terms of closing the funding gap; the gap had been identified in 2006 and had been addressed in various manners. There had been a sales conversion model which saved R120 million, the strategic sourcing would save R250 million and so on. In total, due to internal service changes they would close the gap by about R1.2 billion. Government would also have to change the legislation in terms of TV licence levies, subsidies to the point where the rest of the balance would have to be found elsewhere.

Before the financial presentation Mr Mbeki wanted to make a statement that related to the strategy but that had financial implications. Firstly the Committee needed to note that the SABC had dug from its own pockets to finance the roll out of low power transmitters, an enterprise that had severely eroded the SABC’s funding. This did not fall under SABC’s responsibility but needed to be dealt with by the relevant organ of state. Secondly, the necessary funds had not been channelled to the SABC for the DTT implementation. What often happened was that legislation had financial implications that were not fully considered by the legislative. The cost of implementing legislation needed to be quantified and it needed to be established who was in charge of footing the bill. The funding of the DTT roll-out should not come from the SABC but should be provided by the state. Finally, ICASA mandate obligations also had unintended consequences that were eating away at the SABC funds, and this needed to be addressed.

He also wanted to take the opportunity to plead to the Committee; they could not have a public broadcaster that competed for the rights of sports of national interest. The House should attempt to look at how to come to an agreement with the right holders. It was unfair for the SABC to compete; the broadcaster was subjected to huge financial commitments procuring sports they were required to carry, and further required to pay market related prices for. In the end the broadcaster was often defeated in the end. In this respect a political intervention was needed.

Mr Mpofu said, in response to Ms De Lille’s question on the public participating in the strategy formation, that a very big public value conference was to be taken to the public. He was certain that when that was done the reception from the public would be very enthusiastic. The strategy had internally been labelled the ‘green revolution’ the greenness symbolising the leafing and the adoption to circumstances, the revolution indicating a complete overhaul of the organisation.

On Mr Kholwane’s comment about the allegations; the document stating that he owned part of Gemini Consulting were outrageous and he urged the members to stick to the Chairperson’s ruling. A combination of a forensic audit and a judicial investigation was needed to deal with all the allegations so that the guilty could be brought to account and the innocent could clear their names. 

Mr Mbebe said that on the documents that had been requested by the Chairperson he would also submit the commissioning procedure that governed the acquisition of content so that the Committee understood the context correctly. He also wanted to point out that in his opinion the men and women that put programming on the air daily were persons of high integrity; however the morale of the employees were drained when they read documents such as the ones submitted to the Committee. The SABC had internal processes to deal with the issues and it was unfair to debate it in the public sphere. They needed to restore the confidence of the staff in themselves providing a public service. As part of that process the reports that came out of the investigations had to be made public. There had been a perception previously that such reports had been universally accessible and it had been asked why the Executive Management had not taken action on previous reports. It had been assumed that they had been made accessible to the Management, which had not been the case. It was very painful to have your name tarnished in the public domain for not taking action on a report that you were assumed to have received whilst in fact you had gone at great length to ask the board to supply the management with forensic reports and audits and this had not been done.

Ms Kilian said that she understood the sensitivity of the documents containing the allegations, but hoped that the Executive could understand that the Committee had a duty to expose what was going on to the public. About the availability of audit reports; legislation said that each public entity had to account in the public domain. Sometimes events unfolded and trends developed that were bad for the institution. It was a very painful experience but it was part of the process of investigation. The SABC was a different animal since it was not an organ of state but it was nevertheless a public entity, which meant that all employees had to be prepared for public scrutiny. There were two instances of mismanagement; either ignoring a good financial strategy or deliberate mismanagement…

The Chairperson interjected and asked Ms Kilian not to speculate any further into what had been happening within the SABC. At the end of the proceedings they could discuss what action they were going to take on the documents.

Mr Mkhize reiterated his question about when the contracting process had been tightened. This was important to know when looking at the backlog of issues. He also pointed out that all the documents making allegations and reporting on irregularities were all internal; they had come from SABC workers, managers and board members.

Prof Gilwald wanted to respond on that. The SAP and the general enterprise systems ensured that contracts were only paid when they had been signed and the systems setup of that process went back to the old board. However the SAP implementation had been 18 months delayed and when it came to contracts it had only recently been implemented. The implementation of the new processes represented a filling of a gap, but this was no guarantee that all instances of abusing the system. It would not stop wilful corruption, but it would correct a general bad practise that had existed previously.



Minutes of the 2008/2009 Financial Performance

Mr Nichols, before he began his presentation wanted to say something in response to Ms Kilian’s remark. As long as people stood in the light they had nothing to fear; but the people who were making these allegations were not in the light, it was not known who they were or what agenda they had. So he hoped that any process of investigation embarked on would treat people with respect and that the allegations would at least be seen with some doubt. The Committee would receive full cooperation from the SABC, but she could be certain that the majority of the allegations would turn out to be false. In an audit process into his own person, some 300 allegations had been made, none of which turned out to be true. This was the kind of process that she wanted to subject Executive Management to. In an environment that was very competitive he doubted that many persons would stay to let the process unfold.

The presentation he was giving today was a performance overview that was unaudited, so some minor points might still change. In the brief overview it was clear that total revenue had come in at R4.8 billion, which was 675 million less than projected. Total costs were R545 million more than budgeted for and therefore the total operating loss was at R839 million during the year which was R1.05 billion worse than budged for. These were the numbers that were presented to the Committee last week, when it had asked to be taken through the information in more detail, which was what he aimed to do now. However in the interest of time he hoped to be able to do it quite quickly so that there would be time for questions.

There was a tendency within the SABC to consume more cash than generated and that tendency had been in place for at least three years. The biggest cash consumption was the acquisition of content; during the current year R2.059 billion had been spent, which showed that the bulk of the money spent at the SABC was on what was actually showed on the screens. There had been questions asked on the balance sheet; the increase in non-current assets from R 1.4 billion in 2007 to R2 billion in 2009 were due to the deferred payment for pension fund liabilities of R420 million last year and R320 million this year as well as the receipt of the Government grant. About the core problem in working capital management, it could be seen that the costs in film and sports’ rights had increased immensely, from R265 in 2006 to R1.1 billion in 2009. The trade and other receivables had risen from R592 to R993 million during the same period. There had been statements about the balance sheet made by board members during the inquiry that he felt he had to be corrected. In March 2008 the SABC had held R573million in cash and had had facilities to access an additional R670 million. The total cash available to fund the strategy had thus been 1.3 billion. He therefore had his doubts about the statements that the balance sheet had been in a bad way and that there had been no funding plan for the deficit budget. In many ways that was still the case for the SABC, since it had total assets of nearly R4 billion and only owed the banks any large sums of money.

Looking at the liabilities; one weakness that would continue going forward was the non-current employment benefits which was essentially the long term post pension medical aid scheme. In 2007 they had decided to fully account for it and bring it onto the balance sheet. The pension fund was funded in access of its liabilities so there were no large liabilities sitting outside the balance sheet. Their creditors’ liability had also increased from R238 million to R1.2 billion. This was not owed in one shot, but it was due to rights that had been bought and brought to the balance sheet and later paid down during the year. The total liabilities were just under R3 billion. At year end they still had had a positive cash-flow, but as the performance kept on deteriorating the problem kept on getting worse. Also the debtors’ turnaround time was fairly long at 75 days on average, compared to the industry average at 64 days.

The difficulty at the SABC came through when one looked at the revenues. The cost of sale remained the same irrespective of the sales. So when the TV revenues came down it hurt the institution’s financial position very quickly and very badly. The commercial revenue had come in at R745 below budget and the public revenue at R116million over budget; R77 million which was a government grant and R38 million which were due to TV licence revenues. In their core revenues they were R692 million down and some of the new sources of revenues had come short of their targets.

The computer software expenditure of R24 million over budget was linked to the SAP implementation and its delay. The SAP controlled, amongst other things, the planning and selection of content against a demand schedule. Another area that it controlled was the Intellectual Property Management (IPM) area, which needed additional control. The SAP in place now tracked every step of commissioning down to the Black Economic Empowerment credentials of the producers. This was addressing problems of the past with corrupt practises; however it would probably take another 18 months before it worked as it should. In connection to this, it needed to be stated that in 1988 when a forensic investigation was commissioned at the SABC, three people had jumped off the tower block. That was the kind of pressure a process like that could put on individuals. Another change in operating expenses was due to bringing freelancers in under the staff costs, which had been done so that they could get a grip on the total value of the human talent that they operated at the SABC. Some of the most creative and hardest working people at the SABC were freelancers.

An area in which the SABC had performed poorly was the control of travel and related expenses. Local travel was R16 million over budget and international travel was R5 million over budget, which was mostly due to the trip to Beijing. Much of the local travelling costs were due to the election; it had been news costs to cover the process. Continuing on news, news international had a budget of R45 million which was revised down from R56 million, so it had been overspent by R10 million just on the production of the news channel. News, current affairs and news gathering were R65million over budget. The budget itself was R594 million and had doubled in the past three years. They all knew at the SABC that this was not sustainable, but the increase was a direct result from ICASA mandate changes. Currently covering an extra language came at R38 million.

To sum up, the problems at the SABC had been due to four core problems; sales; cost management; the delivery of strategic projects; and the working capital management. Within the working capital problem the issues was mainly procurement of foreign rights and the exchange rates volatilities, as well as the debtors’ age analysis, where through hard work the targeted days had been brought down to four days behind industry. There was much more that could be said, but he was sure there were many questions, so he handed over the floor to the Committee members.

Discussion

Ms De Lille said that perhaps she needed some lessons in accounting because she had problems understanding how to read the statement of comprehensive income in the strategy document. In the section that presented the profits and losses it said that there was a loss predicted for 2009, 2010, 2011, 2012, 2013 and 2014. How was this to be understand in the light of Mr Mpofu’s statement that the strategy would save R450 million in its early implementation. Was the strategy working? Secondly, she asked Mr Nicholson to explain the increase in liabilities. Finally it had been said earlier that the working capital management needed an earlier and more aggressive intervention in terms of financial risk management measures. Where had that been dealt with in the presentation?

Ms Kilian said that the problem seemed to be that the SABC problem was that the organisation consumed more resources than it generated. In light of this why had personnel costs increased? Was it due to the 345 new staff members? Was it due to an increase in employee benefits? It was also mentioned that the SABC had a fleet of 1000 staff vehicles. What was covered by the SABC in terms of costs, who qualified for a fleet car and what was the cost of this fleet? About the pension funds, what was the contribution practice? It was a good thing to have a strong fund, it retained staff, but she was concerned that the SABC was over generous.

Mr Nicholson begun by addressing Ms De Lille’s questions. About the statement of comprehensive income it was a strategic income statement which showed where the organisation would be in five years if no measures were put in place to counter the trend loss. So the document had showed how bad it could get – it did not mean that that was where they were going to be in five years. In fact they were making sure that they did put measures in place to avoid ending up there. Four or five core strategies had been identified by the board to address this issue. Firstly they needed to get back to a positive cash-flow. This related to the question posed by Ms Kilian. It was not that the SABC consumed more resources than they generated, it was that they consumed more cash than they generated. Secondly, in order to do that they needed to address the working capital management and put a stop to all cash spend on non-core projects. They needed the Outside Broadcasting (OB) vans and a digital news server; these projects were funded by the government and were crucial in ensuring delivering on the 2010 mandate, but that was really all they were spending cash on.

Thirdly they needed to reduce the monthly expenditure so that it was below the operational cash flow, which was something they had really struggled to do. They also needed to reduce the spending on content, specifically sports rights and foreign content, which was also connected to what was driving the liabilities. When this content was purchased it was purchased four years in advance and was then gradually brought out of the balance sheet as a liability according to a payment schedule. This was why the liabilities continued to grow, because the strategic sport rights that came onboard kept on increasing in price and this was also why they had to do something about the sports mandate.

The visibility of the rights commitment in place for all production needed to be improved and the medium term security of these commitments needed to be ensured. One of the major difficulties at the SABC was to establish what was owned and what was owed in terms of content. Then there were the issues of the international news bureaus, DTT and sport and sport rights which all large cost drivers. If DTT was to be implemented, the funding hole was about R2.36 billion, and this was the issue that really needed to be discussed when the whole debacle was put behind them. What did the country want the SABC to look like in the digital environment? The current financing model could not support SABC’s strategic ambitions, and if the ambitions could not be supported they should not be planned for. The most likely scenario, if all the strategies were implemented according to plan, was that there would be a funding gap of about R1.6 billion, but it had to be kept in mind that it was not often that things went exactly according to plan.

About the debtors’ management, there were two issues with the working capital management. Firstly; did they have visibility of what liabilities that were taken onboard? Secondly, they had not responded fast enough to their debtors’ book to manage the cash flow. The debtors’ payment period was around 109 days, while the industry average was 64 days.

Ms De Lille commented that the PFMA was 30 days.

Mr Nichols said that that was to pay, not to be paid. But if they worked it out; when an order went through one was given 30 days to deliver, then the debtor was given 30 days to pay, which brought the turnaround period to 60. Add four days and they were at the industry average, which was not far off the PFMA. If the entire industry was running on 65 days the SABC could not run on 30. If debtors did not pay in time they lost their commission, which was a point of soreness within the industry right now.

About Ms Kilian’s question on the staff costs. The increase in headcount was mostly mandate driven; the changeover in technology meant that there was some duplication of staff since one could not learn broadcasting in a day. About the pension fund, it was indeed very nice if you were about to retire, but it presented a problem in terms of the payment structure at the SABC. The people they needed to hire were young and vigorous and did not appreciate the large contribution to the pension scheme as much as they would appreciate the equivalent of cash on their pay check. This put the SABC in a disadvantage when negotiating contracts with staff, since other employers offered larger pay checks but fewer benefits. This was in turn causing an inflation in wages. The SABC had traditionally had indemnity driven benefits, which meant that the SABC guaranteed for example all medical aid costs after retirement, irrespective of how much they went up. These types of benefits had been shut down one by one; the only two that remained was the pension and the maintenance and fuel of staff vehicles. These processes were very difficult to shut down, due to the vested interests and considering the current wage negotiations. The pension contribution was about 21% out of which staff paid 6 or 7%. They were in negotiation to bring the contribution down to a 50-50, which would save the SABC about R45-50 million in cash every year. It had to be noted though that this was not increasing revenues, because the asset would decline proportionally, but it did help rectify the cash flow problem

The Chair was concerned that the board members had said that they reluctantly signed of a budget late in the year. In the mean time, did the Executive Management defy the cautionary note expressed by the board in terms of the budget and went ahead according to plan? The one thing that the SABC could not have planned for was the global economic meltdown, but could the entire financial crisis be ascribed to that? About the sports rights, was there any control in the procurement of rights? The amounts spent were huge, why was no cap set on that? 300 and something persons were employed in the last year, why had the revenue creation not been considered when persons were employed? With the international bureaus, the budget had not been approved but management had gone ahead and rolled it out anyway. Looking at the fiduciary duties, some of it rested on the management. Had the management acted in defiance of the board or had the board simply not seen it coming? The Committee had been told that it had been realised that there could be a problem coming in June ’08, and that in September the same year it had been clear that there was a big problem. Why had there not been a response? People had continued to be employed and rights had continued to be purchased.

Ms Morutoa asked about the travel policy document. It stated that all trips were subject to official approval at the appropriate level. Did that apply to board members and the Executive as well? Did it include accommodation? And when had the new policy come into effect? There would be follow up questions, she was only collecting ammunition.

Mr Kholwane said that the CFO, in his presentation, had cautioned against commissioning forensic audits. Did he have a suggestion on how to deal with the current challenges and flying allegations without a forensic audit? The management itself had agreed that a forensic audit was needed so that they could move on without a shadow of suspicion hanging over them. About the staff levels, he was not for retrenchments, but how did the SABC plan to ensure that it had the required skills at the appropriate levels? When acquiring staff did they broadcast the labour requirements and so on?

Looking at the travel policy, he saw that it was dated in May 2009 and he was glad that the SABC in it seemed to have responded to some of the union allegations. Now, the question was if the changes had been made operational? In not, when would they be? Those were the questions, although he was still battling with the over expenditure and so on. Part of what was going on was that there was a perception that some people were coming close to unravelling the truth, but listening to the presentation it seemed like they missed the point. He could not pinpoint where the problem was, but something seemed to be fishy. The picture they had been presented with today did not in any way match the one that was painted in the media. If the presentation was right it seemed as if the public was being deliberately and maliciously misled.

The Chair agreed with Mr Kholwane. He wanted to read out point number seven from Ms Bulbulia’s letter. It stated:

“The crisis that we are facing today is the consternation of layers of deep rooted systemic defects in the machinery of the SABC. Whether it is the commissioning editors on the take, or executives ensuring that their unlimited car allowances are protected, to the industrial espionage of selling trade secrets to competitors or board members and chief executives playing politics…”

These were very serious allegations. Mr Mbeki had also insinuated that bidding, tender and procurement processes were significantly manipulated. The question was where were the intangible problems? It had been said that the SABC had 120 or so general managers. Was this true? What did they do with so many managers, were they filling a necessary purpose or were they simply holding on to their positions? It seemed as if they were walking around the problem without being able to pinpoint it. Mr Mpofu had said that there were no systems or controls in place when he had been appointed GCEO, and that he had subsequently implemented such controls and systems. But it seemed as though the bad culture continued. It was certain that removing the board would not solve all the problems within the SABC; the problem went much deeper than that.

Mr Mkhize said that in terms of the staff it said that from 1 March ’09 the staff costs was R4.4billion, but at the same time the number of free lancers increased, and they were also being paid by the SABC. Why had the number of freelancers increased at the same time as regular staff increased? Also, on page 82 of the presentation it said that the terminations between March ’08 and March’09 had decreased for all races except the whites. Why was this?

Ms Magazi had two questions. Firstly Mr Nichols had said that the SABC only owed money to the banks. If that was true why were people toi-toing outside the SABC buildings? Secondly, as Mr Kholwane had said; the presentations looked good and she could not see where the problem was. Looking at the strategic plan they were going in the right direction, although there were a few things that needed to be sorted out. In the financial presentation it seemed as if there were areas in which the SABC excelled and some in which it was not doing so good. She wondered if members of the Executive went for crash courses aiming at improving their managerial skills so that they were appropriate in the new democracy. Did they network with other managers in similar positions? The technologies and the managerial styles constantly evolved and it was important to ensure that the managers were evolving with them. If there were no-performers amongst staff they needed to be dealt with; managers needed to find out why they were not performing and empower them to improve.

The Chair called a 15 minutes recess for tea and coffee before he took the rest of the hands and the reposes. When they came back Mr Mpofu was given the word.

Mr Mpofu stated that this had been the best meeting he had ever had with the Committee. They needed to get down to details like this in order to ensure that the accountability process was functioning properly. Looking at the structure of accountability they all shared a part of the responsibility; the general management was accountable to the Executive Management, which was accountable to the board, which was accountable to the Portfolio Committee. Then there was the President who was responsible for appointing the board. What was clear from the SABC’s side was that if there was to be a real solution to the problem there needed to be a change in legislation. The funding mix had been continuously spoken about during the inquiry process, and so had the funding model; both of these needed to be changed. South Africa did not have a public broadcaster, it was a public broadcaster by name only, in reality it was a commercial broadcaster. The Executive had previously said that it would be a disaster if changes were not made. Now the disaster was here. About the TV licensing fees, they stayed the same while the costs of collecting them steadily increased with inflation. The result was that profit gradually diminished. This was something that was not in the hands of the management or the board; it was in the hands of the legislative.

The SABC was a unique business; running this entity was not like running a Pick & Pay. 70% of the costs was out of the Executive’s and the Board’s hands. Of course the remaining 30% had to be managed efficiently, but this was not enough to solve the problems at hand. For example, the ICASA mandate demanded that there needed to be news in so and so many specific languages, which had clear cost indications. Then there were the requirements that the SABC procured sports of national interest at ridiculous prices in the ranges of $100 million, which led to the next problem of the exchange rate volatility. Changes in the exchange rate could dramatically change their costs. Finally the deficit budget had been related to the implementation of DTT and international news bureaus, which were both mandated projects. The news bureaus in themselves had a R300 million shortfall. The Executive had scrutinised the budget and concluded that the negative factors could be funded. However when the budget was presented to the board it exclaimed that it would not accept a deficit budget under any circumstances. So costs needed to be cut significantly, but this was a problem since the costs were mainly externally imposed.

Then the economic meltdown happened, which meant that the revenue generation decreased significantly. The deficit was in the end a result of costs exceeding the profit. The problem was that the Committee seemed to be looking for one smoking gun. But there was no such thing. It was a plethora of issues that had caused the crisis. The responsibility lay on the management, the board, the Committee, the Department of Communications, the Minister of Communications, and finally on the President. They had all contributed to SABC ending up where it was. The shenanigans during the past year had occupied the eye of the Board, which had led to an 18 month delay in implementing the strategic responses that could have softened the blow of the crisis. They had been on the verge of spending R50 million which could have saved the organisation a great deal more. But there had been no leadership to take the strategy to the next level. He suggested that the Committee came to visit the SABC to educate themselves in the complex processes that were taking place within the broadcaster, which would ultimately help them understand where the Executives were coming from and help them to execute their oversight duty more efficiently.

Prof Gilwald wanted to respond to the questions about the tangibility of the problems. What tended to happen was that there was a conflation of issues, and these needed to be separated. The financial problems had three aspects to them. Firstly, within the funding model there was a contradiction between the public mandate and the commercial structure. The implementation of the DTT needed to be funded upfront by the state, ahead of the roll out. Secondly there was the financial management and the budget, an issue that related to the first aspect. It had been clear from the analysis that the licence fees generation was in the area of R550 million; an increase in the fee was needed. Just one or two rand more per eligible household would make a huge difference and it was an increase that most people could afford.

In the financial area there was also the problem of the sports rights, a problem that could be further unpacked. There had been tension between the management and the board and in certain instances they had ended up with rights that were not being used as they should have been. Looking at the news budget and the management, it needed to be determined how the overspend had occurred when the dissatisfaction around the deficit budget had been so strongly pushed by the board. The oversight of the staff was a managerial responsibility and not the responsibility of the board.

Looking at the employee numbers it could be seen that the number of African staff had been strongly increased and the employment of group had also increased, although not as much. Practically the headcount increase had not resulted from the technology development but from areas of skills shortages. They could streamline the organisation without embarking on retrenchments by simply not filling the vacancies. Finally, the austerity plan which was addressing the revenue issues had been brought to the board by the management and there had been much engagement on the plan. There had been two things responsible for the immediate crisis; the austerity measures not being implemented as effectively as they should have; and financial meltdown, which had resulted in a failure to meet the targets. A problem had been that the strategy projects had not delivered the savings that they were projected to deliver, or they had been overspent. Those issues needed to be unpacked with the management.

Mr Mbebe said that in terms of defying the board it could be seen on page four and five of the income statement that there were two main expenses; employee cost and other expenses. Employee costs had come in under budget at R1.6 billion from a projected R1.7 billion, so that was not a major problem, although it could be argued that staff costs could come down further. Secondly, looking at ‘other operating expenses’ the budget had been R2.5 billion and the actual spend had been R3 billion. Furthermore, the revenue line had been expected to come in at R5.4 billion but had in fact come in at R4.8 billion. The revenue itself had been R670 million less than projected, so it was clear that there had not been any defiance of the board; the dismal financial performance was due to the economic meltdown. There had been a R200 million overspend, by and large in the area of professional consulting services, services that were needed in order to turn the organisation around. In conclusion it could be seen that the budgetary problem was by and large created by the decrease in revenues.

In light of this, why had the SABC not put a lead on their core content, being; sports rights, local content and international news? Again looking at the budget for the content, it was R2.5 and the spend R2.3 billion, which meant that there was a lead of R200 million. This was in itself a problem, because as a broadcaster the main trading asset was its content; if content was cut down it would have to show repeats, which would lead to a loss in audiences and a subsequent loss in advertisement revenues. This was a vicious cycle because the repeats and the lower revenues also led to failure to meet ICASA mandates. So there was a question on how big of a lead the broadcaster could put on its core content.

Also it had to be noted that the income and expenditure statements showed content that had been purchased two or three years earlier. There was a delay in the results from putting a lead on content; what was being done now would only be visible in a couple of years. If they made a commitment to produce a good drama in 2009 it would only be on the screen in 2011, but the cash had to be paid upfront in order for the production to begin. If the revenues were not good enough to support the content, the content, although being the largest cost factor, was the last place where the broadcaster could trade-off. A trade-off now would only result in the inability to meet content obligations in two years time.

Another problem, as mentioned, was the poor cash-flow; which resulted from having to pay cash for programming before the revenue arising from that programming could be realised. There were three main areas which demanded cash to be paid long before any profit could be realised, these were; sports rights, international content and local content. Looking at sports for example, as soon as the Beijing Olympics were concluded the SABC needed to start paying for the next Olympic Games. When signing contracts they often needed to pay up front; R1.7-2.6 billion was the total cost for pre-paid rights. In addition, the SABC’s negotiation position was limited. The institution was an ant dealing with elephants. One example mentioned earlier was the FIFA rights contracts. The SABC wanted certain clauses changed and the FIFA lawyers said that they had already signed those contracts with many other broadcasters that in total had given FIFA $3 billion. The contract with the SABC was only worth $10 million so it would cost FIFA more to change all the other contracts than they would gain from doing business with the SABC.

Also, the contracts that had been negotiated on foreign content three or so years ago were subject to yearly escalations of about 10%, but considering the increase in the dollar to rand ratio the amount that the SABC had to pay had almost doubled. This also had a large effect on the cash-flow deviating from the projections.

On the local rights the management had to commit in advance. If they decided not to they would receive a poor drama in 18 months instead of a good one in 12 months. If they commissioned a documentary, it needed to be researched ahead of time, and this could not be done if the SABC was not willing to commit upfront. Linked to this was how to manage people on the take. There were many good people at the SABC but in every commission the editor managed projects differently. If the Executive saw that content which was normally priced at around R10 000 per episode came in at R13 000 per episode they inquired into why this was. If it could not be explained then an investigation was issued. Often costs deviating in the area of international content were due to bidding wars, but if the deviation in price could not be explained an internal audit was issued. In the area of sports rights the policy was that management had to get a mandate from the board before negotiating. It could be seen in the Deloitte and Touche report how dramatically rights had increased in price. Also, in more and more instances the SABC had lost the rights because they could not meet the deadline of bidding submissions since they first had to acquire a mandate from the board. Lastly, as Mr Nicholson had said, the internal audit costs had gone up from R3 to 7 million, which was precisely because of the constant investigation that they had been under, especially within the area of content procurement. On the one hand this was good, because it prevented people from being on the take. But on the other hand it could be a problem in paralysing the organisation, people not knowing what to do. He hoped that in his simplistic way he had been able to explain a few things around those issues.

The Chairperson thanked Mr Mbebe and said he also had a simplistic mind, and the explanation had been very helpful.

Ms Nzimande stated that out of the bouquet of outstanding questions she would begin to answer Mr Morutoa’s question on the travel policies. They had provided the Committee with the original policy dated October 2003, the new policy document from May 2009 and a document that tracked and traced the changes that had been made. These changes were informed by the austerity measures and meant that they had impacted on the class of travels, the cars used and so on. Looking at the approval of travel arrangements; the Executive approved the general managers travel costs, and the GCEO approved the Executives’.

On Ms Magazi’s question concerning skills improvement; as a public entity they ascribed to the legislature and policy requirements of submitting their skills improvement plans which were due on 30 June annually. This was done thoroughly, from the top down; it was realised that they had to be agile in their life-long learning. They also participated in the organisation for the broadcasting sector on the continent and in the common world and so on, which helped them to form an understanding of what their peers in a similar socio-economic environments were doing.

The Chairperson had asked about all the general managers which were in the range of 120 in number. She wanted to contextualise this number. Although there may be some duplication at places, most of the positions could not be cut, but were a result of the complicated business situation at the SABC. The fact of the matter was that many of the persons that appeared under the heading ‘general manager’ in the financial statements were in fact experts in their fields. That they had fallen under the ill-fitted heading was due to their pay structure being similar to that of general managers.

Mr Kholwane and Mr Mkhize had asked about the increase in staff numbers. Part of the increase was due to the highly regulated environment; ICASA had since 2006 mandated that news had to appear on weekend slots and due to the increase in terms of language specifications there was almost a 24 hour a day business time spent on news. Then there were the national projects, such as the election and the Confederations Cup and so on which had meant that they had to increase staff to meet their demands.

Mr Mbebe interjected to answer why both freelance and permanent staff figures were going up. The committee was asked to imagine that during the election they needed to cover one more news bulletin per day. This would result in them hiring one expert producer, one researcher and one production manager. The rest of the staffing needed would be made up out of freelancers. This was why the two increases moved in the same direction instead of, as it traditionally was, in offsetting directions. Two years ago they showed two PSL games a week, that number was now five. That meant an increase in the production coordinators, production executive producers, staff for three more OB vans and so on. Some of the staff was freelancers and some were hired permanently, depending on the situation of need surrounding the employment.

Ms Nzimande continued to respond to the question and said that the SABC were busy identifying the problem of duplication within the staff structures. The head of the clusters interrogated all new employment in terms of how necessary they were; could the departments work smarter instead of hiring new staff? Also they aimed to utilise the staff they already had on board, to retrain people and move them to where they were the most needed. The normal rate of resignations and retirements could, in this light, be enough to stop the staff increase. The employment policies had acknowledged that it was not business as usual at the SABC.

Mr Mampone asked the Committee to please believe in what the strategy document said; it was the truth! It was imperative that they moved forward so as not to let the organisation totally disintegrate. This was an opportunity for them to work as a team; the SABC needed the support from the Portfolio Committee, the DoC and all its other stakeholders. After all that had been said and done it was imperative that the institution moved forward. This demanded diligent, hard working people who could walk away with the key learnings from the challenges that the institution had confronted. It was important to establish what had gone wrong. By now everyone could cite the issues of by heart; the financial mismanagement, the issues of governance and so on. The strategy presented today showed where they wanted to take the SABC, but they needed the Committees support in order to succeed in doing that.

About all the allegations, the submissions showed that management said x, y, z, whilst the board members or the unions said a, b, c. It was impossible to know who to trust. In order to move forward they had to clarify the rules of the game. This was an opportunity to create a board that had a new remittance and that could, in accordance with the plans that had been presented, take the SABC where it needed to go. However, serious issues had been raised and in order for the management to regain the trust from the stakeholders it was imperative that they had an investigation so that their names could be cleared. If this was not done there would always be a suspicion hanging over their necks. They wanted to be taken seriously as honest people who believed that their work could make a difference to the institution. The board needed empirical evidence to table to do away with the allegations. He therefore asked the Committee to take this appeal seriously and allow the process of an investigation. The majority of staff members at the SABC were good persons who continued to see the SABC as a future place for themselves and others to work. It was also important that they asked the Committee to carry out its oversight more closely. They SABC board and Executive should not come to the Committee only when there were problems. Without the proper oversight the SABC would become even more problematic.

They had on many occasions, as management, talked to the unions and deliberated on the issues in which they could contribute going forward. There needed to be ongoing communications. About the wage negotiations the contracts previously negotiated had contained an escape clause which the Executive now needed to evoke due to the financial crisis, but the unions were not willing to negotiate; they wanted to stick by the multi-term agreement, which would push the SABC further into the crisis due to its limited funds.

It was crucial that as employees they knew that as long as they worked for the SABC some personal disclosures about them were always going to be made, that was the nature of the beast. But they needed to improve the situation so that the management could regain the confidence of its staff. The provision of misleading information exasperated the situation. I was crucial to drive the situation and earnestly try to stop the submissions that were fast eating up the morale of the institution and which resulted a low sense of self-esteem amongst staff. They could not walk with their heads held high. He did not enjoy the executive being portrayed in a bad light. They had to devise a way to deal with this as soon as possible.

The Chairperson wanted the procurement policies tabled and so on. A number of persons had called for a further investigation, including Ms De Lille, Mr Mpofu and Ms Kilian. The Committee did not have enough resources, time or the power to investigate the issue themselves. Only the President could appoint a forensic investigation. At the moment there were not enough hard evidence on the table to warrant such an extensive investigation, so the decision whether to embark on it would be left to the shareholder. His proposal was that the three of four documents with specific allegations that the Committee had received today were submitted to the office of the Auditor General (who had kindly attended the proceedings) for immediate investigation, emphasizing that it was urgent that they came back with their findings. He asked what Committee members thought of that proposal.

Mr Kholwane said that he had no problem with that process but he wanted to add the document provided by Mr Khumalo that spoke about the mishandling of processes and finances.

Ms Kilian said that she too supported the suggestion but that she also wanted to appeal to the Minister that a forensic investigation was to be carried out. She wanted to ensure that all the members could respond to the allegations, but it was unfair to expect them to respond without first having looked into the allegations. The management and the Portfolio Committee wanted the same thing, which was to restore the confidence in the SABC as an institution. They needed a clear slate and they needed to cut straight to the bone of the problem. As Mr Nicholson said, that was going to be a very painful process that lasted for about three to six months, but then all the allegations could be cleared out and they could truly move forward.

Ms De Lille said that she had listened attentively but she seemed to be missing something critical. The question was not about the day to day running of the SABC but the broad business principles that needed to be applied correctly. There was no question of the Executives’ credentials to do good work. But the Committee was in the business of accountability and not in forgiveness. The top three positions of the Executive were appointed by the cabinet and the other eight responded to the board, which responded to the Committee. They could not deviate from the organogram of responsibility. She thought that the best thing would be to suggest to the DoC, as a shareholder, that a forensic audit was ordered. That was the only way that the allegations could be laid to rest. If they did not do this then the Committee would also be labelled for only getting rid of the board and not seriously considering the responsibility of the other parties involved. They needed to keep the balanced and they needed a forensic audit.

Ms Mazibuko said that she wanted to add her support to Ms De Lille; they needed a forensic investigation. About the Auditor General’s investigation she recommended that the financial presentation was added to the other documents to be considered since there seemed to be some unnaturally large jumps in the year to year spending figures.

Rev K Zondi (IFP) offered his support for the Chair’s suggestion on the investigation. They needed a comprehensive investigation into what had happened in the SABC. The people who were involved in the episode were people who were highly placed in society. He did not want to be part of a process where they did not attempt to clear the former board members, who had been asked to leave, from the smoke that would inevitably follow due to the allegations that had been made in the process. He did not want to in any way harm their reputation. Moreover, the probe into the board was limited. The second level they needed to look into was the Executive Management. The Committee was not qualified to go into the nitty-gritty, but they needed a comprehensive investigation into the board, the management, the funding model and the ICASA mandate in order to create an operating model that would work in the future. They needed to ensure that the public broadcaster was an asset that they could take pride in compared to other public broadcasters around the world.

The Chairperson asked for the ANC’s position on a forensic investigation.

Mr Kholwane responded that he agreed with the suggestion to refer the documents to the Auditor General. About persuading the DoC to embark on a forensic report, the Minister had indicated that the new Broadcasting Act Amendment would look at changes in the model. The process was busy unfolding. In considering a judiciary process he was not sure if they had enough evidence to recommend a forensic investigation. The first step should be to commence on the Auditor General investigation and in light of the result from that investigation decide whether to recommend a forensic report or not. The parliamentary removal of the board had created an impression that they were only interested in addressing the board and that was a fundamental mistake that needed to be corrected.

Mr Mbeki said that he supported an investigation since there were many dark clouds hanging over peoples’ heads. He agreed with Rev Zondi; it was important that the nature of the investigation, although some casualties were inevitable, was to find a way forward for the broadcaster. The document he had provided had alluded to the general problems within the SABC, generic tendencies that were caused by the gaps in the system. It was inescapable that people took advantages of such gaps. If the process was to be used as something on which to base punitive measures they would not be able get to all the answers that they needed in order to move forward. They had to correct the issues that had caused the problems, but it was important to ensure that that process did not have unintended consequences. If people were under threat they would not be as open, and openness was needed to correct the fundamental problems. He knew that other members of the board had wanted to make submissions to the Committee but that the 24 hour deadline had been to short for them to do so. He therefore appealed that they would resolve the issues with the sole purpose to restore the dignity of the public broadcaster and clear the dark clouds that were hanging over people’s heads.

Mr Mpofu said that he wished to change his statement in light of what had been said. There were two processes that needed to be embarked on. Firstly, they needed a process aimed at holding people accountable and clear the any suspicions. Secondly they needed a process aimed at finding a model that would work in the future. They needed to separate these two processes because they had entirely different dynamics. During a process of accountability it was in the human nature to withhold any information that could be potentially damaging to oneself. On the other hand, a full investigation aimed to simply correct the fundamental problems of the organisation would motivate people to speak openly and earnestly. The SABC needed both these processes, and he suggested that they first tried to establish any guilt within the SABC and then moved on to a full investigation.

Prof Gilwald said that they needed to establish clear policy and legislative processes to correct the policy vacuum that had been identified. The current policy had been created in 2001 and many things had changed since then. That being said, an investigation into the policy and legislature was entirely different from a process of inquiry.

Mr Kholwane said that perhaps they needed to look at the speech by the Minister on the White paper policy that was coming, which looked at the loopholes in the ICT sector as a whole. Perhaps they should embark on an educational trip to another country with a large, successful public broadcaster.

The Chair interjected and said that the Committee had insufficient funds to embark on such trips.

Ms Nzimande said that now they were narrowing down to a real discussion. They should not just limit the decisions on the public broadcaster to the legislative processes. What was needed was a national Indaba where all views and perspectives would be considered. About Mr Kholwane’s suggestion to go on an educational trip; broadcasting was very highly organised across the world and they would be able to provide information on all the countries that had a public broadcaster. In October the commonwealth broadcasting conference would be held in South Africa, so there was no need to travel far. But perhaps they should simply start with an educational visit to the SABC headquarters in Johannesburg.

The Chairperson said that the Committee had not yet had their strategic decision meeting, where they would develop the Committee’s programme for the year, but when they did they would keep the offer in mind. Summing up he said that they had agreed to ask the Auditor General to investigate the allegations into the SABC. If the results indicated that a larger investigation was needed they would instruct the Minister to order a forensic investigation. The direction of the broadcaster needed to be part of the programme moving into the future. It had been a tiring day and he thanked the Board members who had been present; the Committee was very grateful that they had agreed to be part of the process. He also thanked Mr Mampone and his Executive team. Tomorrow the Committee’s report on the inquiry into the SABC board would be debated in the house, and depending on the outcome he might call for an urgent meeting to begin deliberations on the interim board, oth