Termination of services of Armscor's Chief Executive Officer, Mr H S Thomo: Armscor Board of Directors

Meeting report

The Deputy Minister’s briefing on the restructuring of the Department to incorporate military veterans was postponed.

Armscor Board of Directors Briefing
The Board of Directors of the Armaments Corporation of South Africa Ltd (Armscor), led by Dr Popo S Molefe, Chairperson, briefed the Committee, on the charges against the former chief executive officer, Mr Hamilton Sipho Thomo, and the process that followed. 

Mr Sipho Mkwanazi, who had been appointed Acting Chief Executive Officer, explained the background. The charges against Mr Thomo related to:

Failing to advise members of the Board of Armscor of a National Assembly Portfolio Committee meeting held in October 2009 [Defence and Military Veterans Portfolio Committee. 14 October 2009]. His conduct caused embarrassment to the Board.  

Communicating inaccurate figures to an amount of R47 billion in relation to the escalation costs associated with delays in delivering the A400M Airbus. This caused severe embarrassment to the Board and to the South African Government.

Arriving about one (1) hour late for a meeting of the Portfolio Committee on Defence and Military Veterans (National Assembly) on 11 November 2009.

Failure to carry out the strategic objectives of Armscor as agreed in February 2009.

Failing to address grievances of senior management and misleading the Board into thinking that the matter had been resolved.

Entering into negotiations with a supplier, Agusta Westland, with an aim of possibly waving contractual penalties to the extent of about R90 million without the knowledge and approval of the Board.

The process against Mr Thomo was as follows:
- Suspended on 18 November 2009.
- Notified on 10 December 2009 to attend a disciplinary hearing.
- Disciplinary hearing conducted on 14 to 15 December 2009 under the Chairpersonship of Advocate Nazier Cassim, Senior Counsel (SC), and in the presence of Mr Deneys Reitz as Armscor’s legal representative.
- Services terminated without notice on 07 January 2010.

Mr Thomo appealed against termination on 11 January 2010. His appeal was based on his allegations, firstly in terms of procedure, that the Chairperson of Armscor was biased and had not communicated his decision directly to Mr Thomo, and secondly in terms of substance, that the penalty was too harsh.

Armscor responded to Mr Thomo’s appeal on 18 January 2010, and informed him that Armscor’s decision to terminate was taken by the highest body at Armscor. Armscor advised Mr Thomo to refer the matter externally if he so wished.

Mr Thomo referred his dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA) for conciliation on 29 January 2010. However, Armscor had not yet received any communication from the CCMA.

Mr Thomo received on 07 January 2010 his leave pay, his ‘normal income as at 07 January 2010’, and his retirement funds to the end of November 2009 (slide 6).

Dr Molefe said that it was the Board’s intention that the departure of the former chief executive officer should not hamper Armscor, and that the chief executive officer position should not be held for long in an acting capacity. Armscor’s human resources committee would report soon and advise on making a permanent appointment.

Discussion
The Chairperson thanked the Armscor Board and the Acting Chief Executive Officer. He appreciated the stewardship of Dr Molefe and the efforts of Mr Mkwanazi, noted a number of improvements and said that the Committee would be kept informed of further developments.

Mr V Ndlovu (IFP) asked as to the consequences if the CCMA reversed the decision to terminate Mr Thomo’s services. Would he forfeit his R4 million retirement funds? 

Mr D Maynier (DA) asked firstly if, in terms of the settlement, Mr Thomo was entitled to a payment in return for a restraint of trade, and, if so, what its conditions were. Secondly, this had obviously been a long and unhappy affair; he asked what costs had been incurred to achieve the objectives of his dismissal. Thirdly, it seemed that the Airbus was the crucial issue leading to this demise, and that he had shared incorrect information. He asked what the correct figure was.

The Chairperson restrained Mr Maynier from asking about the Airbus. This was now a matter for the Cabinet. 

Armscor replied that it had acted in terms of Mr Thomo’s contract. Armscor did not think that the CCMA would debate whether Mr Thomo’s compensation was fair and just. What he had been paid were the benefits to which he was entitled from his contributions to the pension fund and because of his many years service. There was no need to return the money.

Mr Gerhard Grobler, Chief Financial Officer, Armscor, elucidated the amounts paid to Mr Thomo on 07 January 2010 (slide 6).

Mr Maynier wanted to discuss the charges in more detail.

The Chairperson did not want such a discussion. The information was before Members. 

Mr Maynier said that under Mr Thomo there had been an issue of lifestyle at Armscor. There had been many excesses, such as travel on first class flights. He asked the Board and the Acting Chief Executive Officer to assure the Committee that there would be some restraints in costs incurred through travel and that the Board was concerned enough to institute austerity measures.

Ms S Ndabeni (ANC) welcomed the appearance of the Board.

Armscor appealed to members of the media to report the facts as given.

The Chairperson said that Armscor had reported on the appointment of its Acting Chief Executive Officer; however, the Board had not yet prepared its new strategy and had appealed to the Committee to allow more time. He agreed to the Board’s request. He discouraged Mr Maynier’s line of questioning.

Ms H Mgabadeli (ANC) agreed that Armscor should be given more time to prepare its strategy. She asked for more information in a form, such as A4 pamphlets, suitable for Members to convey to their constituents. She referred to the President’s priority of job creation. It was important to see that industries such as Armscor related to the situation as it was now in South Africa, to the vision for South Africa’s future, and the need to give more opportunities to young people.  It was important that Armscor not appear to be preoccupied with boardroom politics, otherwise the public would think that the pree-1994 Armscor still existed.

Mr Maynier said that one of the problems during Mr Thomo's stewardship was his relationship with senior management.

A Member objected that the Committee had digressed from the agenda.

The Chairperson ruled that this objection was sustained.

Mr D Smiles (DA) thought that Armscor was doing a good job in acquisitions, though questionable in some cases, and should continue to exist. He referred to a legislative assessment concerning Armscor. He thought that the Committee should take note of this assessment. Perhaps this assessment would address the questions that his colleague had raised about Armscor’s compliance with legislation, and thereby inform the Committee and help it to appreciate Armscor.

Mr Ndlovu appreciated the briefing but requested that in future Members be provided with documents in advance.

The Chairperson thanked the Armscor Board. Members would further discuss the issues amongst themselves.

Committee business
The Chairperson informed Members of the programme for oversight visits, including a visit to Operation Corona on 28 and 29 April 2010.

The meeting was adjourned.