SABC progress report on Committee and Auditor General Recommendations

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Communications and Digital Technologies

22 November 2010
Chairperson: Mr S Kholwane (ANC)
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Meeting Summary

The South African Broadcasting Corporation briefed the Committee on its progress with the recommendations made by Members at the SABC’s 2009/2010 Annual Report presentation . The briefing focused on the schedule of board meetings, the entity’s turnaround strategy, the retention bonuses, SABC’s subsidiary companies, the Auditor-General’s investigation progress, salary increases for senior and middle management, disciplinary cases, and Board performance. The Board was happy to report that the net profit before tax at 31 October 2010 was R132 million compared to a loss of R269 million in 2009. Recognition had to be given to the Board as well as the Interim Board for the fact that they had reduced the SABC’s deficit from R950 million to R450 million. Unfortunately the announcement about the halving of the SABC’s deficit was only announced at the end of the meeting so the tone of the meeting might have been somewhat different if the Committee was aware of this.

The Committee discussed, in depth, the appointment of the Head of News, Mr Phil Molefe. Members were concerned that the proper appointment procedures and policies were not adhered to by the Board. The Board was asked to explain the entire appointment process from interviews in May 2010, shortlisting and more interviews for four candidates. The Board did not complete the scoring of the four candidates that day and agreed to meet the following week to finalise it. A meeting was to be held on 3 June 2010 to discuss the appointment and the matter of the news division. Unfortunately, just before the meeting was scheduled to take place an announcement was made that the new Head of News had been appointed
. The Board felt that the matter had to be discussed further and the appointment process had to continue. A meeting was held on 6 September 2010 where an appointment recommendation was made. The Board accepted the recommendation and Mr Molefe was appointed as Head of News. The Board admitted they may have made mistakes in the past but they were moving forward. The major concern was that an announcement was made to the public before the Board could apply its mind and make a decision on the appointment. They made it clear that the decision taken by the Board on the matter was not a ratification or a confirmation of the announcement. The Board assured the Committee that they did not have any personal issues with Mr Molefe and he was the best candidate for the job. The Committee replied they did not have a problem with Mr Molefe but they questioned the appointment process that the Board followed. One member called it a “complete and utter debacle”. The Board reported the matter to the shareholder and the Committee, but Members did not do anything about it. The Board then decided to move forward with the appointment process. The Committee assured the SABC that when they heard about the debacle, the matter was reported to the Public Protector for investigation. Members were concerned that Mr Molefe had been paid a salary from the announcement made in May 2010 to his formal appointment in September 2010. This payment was in contravention of the Public Finance Management Act and the Auditor-General would have to list it as irregular expenditure. The SABC Board assured the Committee it would take the appropriate actions to manage the situation.

Members raised concerns about whether the number of meetings in the Schedule of Board Meetings was
enough to allow the Board to function at optimal level, how the entity was going to attract and retain new skills, why they did not have a sub-committee on human resources matters, when SABC vacancies would be filled, how they managed to decrease the deficit by R500 million, when they were going to be rid of their dormant subsidiaries, and was part of the turnaround strategy to regain their lost viewers? The Committee asked if irregular expenditure had been resolved, what the fraud awareness campaign would entail, whose responsibility it was to ensure effectiveness of the SABC’s policy frameworks for supply chain management, and what the Board had learnt from the Auditor-General’s report. Members wondered how it was that certain employees could be suspended for months at a time. This was considered fruitless and wasteful expenditure and a risk matter.
Questions were asked about its declaration of interests policy and compliance with it. Members worried that employees would leave the entity after the remuneration policy was phased out.

The Chairperson noted that during a tea break, National Treasury representatives were trying to get Members to ask certain questions. He said the Committee respected National Treasury, but if they wanted to participate they had to make the necessary arrangements with the Committee.
The Board replied that the SABC was surprised by National Treasury’s conduct, as it left much to be desired. They would take the matter up with their Minister.

A
Member was concerned that the presentation did not given clarity on SABC’s actual position. If an ordinary person heard what the SABC said, they would not have understood what was going on. The SABC Board claimed there was a trend for the Committee to use the Board as “punching bag”. They accepted criticism for wrongs in the past, but an enormous amount had been achieved by the SABC. It was only at this point that the halving of the deficit was announced. Members assured the Board that the Committee was not there to criticise the Board all the time. They were there to perform oversight over government entities.


Meeting report

Election of Chairperson
Mr S Kholwane was elected as the new Chairperson. He thanked the Members for choosing him and appreciated the support he received from the different parties in the Committee. 

Opening Statement
The Chairperson reminded the Committee that a meeting had been held with the South African Broadcasting Corporation (SABC) previously, but the discussions had not been finalised as there was information that was not available at the time. The Committee recommended that the SABC should return and report on their board meeting schedule, the entity’s turnaround strategy, the policy for retention bonuses for staff members, progress on the Auditor-General’s findings, subsidiary companies, the salary increases of senior and middle management, disciplinary cases, and the performance review of the SABC Board.

Dr Ben Ngubane, Chairperson of the SABC Board, congratulated Mr Kholwane on his appointment as the Chairperson of the Committee. The SABC looked forward to productive interactions with the Portfolio Committee. He said that the SABC suffered from severe capacity constraints, and there were some employees that had to do three jobs within the corporation, in addition to their normal duties.

Response to Matters Raised in October 2010 Meeting

Schedule of Meetings
Dr Ngubane said that the SABC had held a meeting with their shareholder at the beginning of the month. The SABC Board and the shareholder committed themselves to implementing good governance within the organisation. The Board wanted to put the past behind them and move forward. This seemed to be working very well for the entity. As the SABC unfolded its schedule of meetings, it would interact with the shareholder to produce an up to date report on where the entity was going. There was a real commitment from all the board members to make the SABC function properly. They were happy that the net profit before tax at 31 October 2010 was R132 million compared to a loss of R269 million in 2009. The Board thought this was a good indication of the progress that was made so far. They hoped this recent recovery would help the SABC to bloom into something that the Committee could be proud of.  

Discussion
Ms J Killian (ANC) noted that the Board had to have at least one quarterly meeting. She knew it had been a tough year for the SABC Board and additional meetings had to be held. She knew there would be more special meetings. She thanked members of the Board for dedicating their time to these special meetings, as the Committee was aware that they were not receiving any remuneration for it. She asked if this schedule of meetings was the formal schedule.

Mr Peter Harris, SABC Board Member, replied that a number of special meetings had been held to address urgent and critical issues within the SABC. Many of these issues had been addressed. 

Mr K Zondi (IFP) asked if the schedule of meetings was going to be enough to allow the Board to function at an optimal level, given the Board’s fiduciary duties.

Ms Suzanne Vos, SABC Board Member, replied that she did not know if the Committee was aware that the Board was operating under a dictate of the late Minister, Ms Ivy Matsepe-Cassaburri. The Board was operating under a decision made by the former Minister that said that the number of main board meetings that had to take place during the year was limited by a number of six board meetings per annum including other meetings such as strategic planning sessions. Also, sub-committee meetings had to have a maximum of four meetings, but in extreme cases there could be six meetings. All the other meetings that were being held by the Board were “special” board meetings, which members did for no remuneration whatsoever.

SABC High Level Turnaround Plan (PowerPoint presentation)
Mr Robin Nicholson, Acting Group Chief Executive Officer: SABC, stated that the PowerPoint presentation was a high level summary of the SABC’s turnaround plan. First and foremost, the plan was about driving operational efficiency within the organisation. The SABC was facing a number of internal and external challenges. There were financial constraints that resulted in a government guarantee and associated requirements. This stemmed from a lack of governance and internal controls, increasing competition, a negative view of the SABC brand and the entity’s reputation, and market pressures due to the weak economic climate.

There were seven key levers for change. The first lever included increased revenues and cost reductions. While focusing on its turnaround, the organisation could not lose its desire to remain relevant within its market. This required a second lever for strategic positioning, which would guide operational and segment plans. It was called the enterprise strategy. The third lever looked at resourcing for change to ensure effective delivery on the turnaround plan. The fourth lever focused on driving a performance culture. This would be done through the realignment of the enterprise’s performance with its strategic deliverables. A culture of performance could be created, which would aid in driving the enterprise to its desired state. The fifth lever included the establishment and implementation of a Delivery Roadmap. This would provide the enterprise, operational, and segment level management and employees with a clear and concise delivery plan on which to implement. The sixth lever was to identify external changes that required a strategic review. The SABC wanted to change and review targets to ensure alignment with changes that were going to be applicable. The seventh and final lever focused on strategy assurance in order to create an organisation of continuous improvement.

The SABC set out a roadmap that showed timelines for key initiatives against “recovery”, “stabilisation” and “sustainable” growth phases. Mr Nicholson said that the presentation tried to give the Committee an idea of what the road map looked like. They could not give Members the strategic details behind it, as they were concerned they might disclose some sensitive competitor information. They did not want to share too much information with their competitors. The recovery phase would take place in the 2010/2011 financial year. The stabilization phase would be implemented in 2011/12 and the sustainable growth phase would take place in 2012/13. The Roadmap focused on leadership and governance, financial management and controls, reorganisation and people alignment, human capital development, improving the return on programming expenditure, and restoring credibility and brand. 

Discussion
Ms S Tsebe (ANC) congratulated the SABC Board, as she saw a lot of improvements and commitment from the Board. The Board reported that one of the strategic levers was to resource for change. The SABC did not have enough skills. They would need high level skills to implement all the strategic levers. What was the SABC going to do to ensure they acquired these skills? She addressed the issue of outsourcing external professionals to assist on audit and risk committees. She asked how much the entity was paying these professionals.

Mr Desmond Golding, SABC Board Member, replied that the Board had to look at what news skill sets were needed for the new turnaround plan. This process would result in employees becoming re-skilled or placed in other areas.

Mr Harris replied that the external professional that were called in were receiving R5000 a meeting, but this depended on the sub-committees they were sitting on. External people were called in to supplement the skills needed in those committees. This happened three or four times a year.

Mr Cedric Gina, SABC Board Member, added that the Committee had the incorrect impression that there were no skills within the SABC. He said that there were skills; however, there were not enough skills. The Board was addressing this issue.

The Chairperson asked if a skills audit had ever been conducted within the SABC.

Mr Nicholson responded said that it was clear that in some areas, the SABC needed more digital skills.

Ms Killian noted that the first lever was to increase the SABC’s revenue. She wondered if one of the key projects under this lever should be to change programming to align with audience needs. Where would this fit in? The SABC was also looking for an appropriate funding model to try to attract more people to use their services, such as advertising. She asked them to elaborate. She was aware that the Board wanted to implement an efficient organisational structure design. The SABC had a shortage of capacity and skills. How do they intend to correct this?

Ms Clare O’Neil, SABC Board Member, answered that since the beginning of the year, the Board has been addressing the revenue issue. The Board created a “fix it” plan that was directed at sales and sales controls. This started in February 2010 and addressed some of the issues that the SABC had experienced. The Board was looking at the issue of programming and the retention of views as well as attracting new viewers. The turnaround plan set a date to the end of March 2011 to fully understand the cost of the SABC’s mandate and what could be covered by the private sector. 

Mr Nicholson addressed the question on the funding model. He said that the Board had to look at funding for local content and where it was going to come from. It was also important to attract some of the viewers back to the SABC’s platforms. There were strong suggestions put together by the content and platform functions. He did not want to disclose the plans, as he did not want competitors to know about it.

Ms W Newhoudt-Druchen (ANC) asked what the SABC was going to do to make its television programmes more accessible. A pilot study was done on Digital Terrestrial Television (DTT) and it was implemented. What were they going to do to make it more accessible? When was the SABC going to report to the Committee on the pilot study? She was told over and over that DTT would make it easier for the hearing impaired to have access to television. She asked if the pilot study would show that it was easy for subtitles to be displayed on the digital television. Secondly, she found it strange that the SABC did not have a sub-committee on human resources. She asked if the audit sub-committee was handling all the human resource related matters.

Mr Golding replied that human resource issues were dealt with by the Board’s governance sub-committee. The audit sub-committee only came in when there were issues of internal policy.

Mr Nicholson answered that DTT allowed for English subtitles as well as for multi-lingual subtitling. This was what DTT was capable of doing. The SABC was not investing in the DTT project right now, until they could understand what the standards were and what the role out dates were.

Ms N Michael (DA) noted that for any investments over R70 million, the entity was offered a 45% discount. She asked if this discount was too much. She wanted to know how far the SABC was in appointing people to fill vacancies, as she still saw a lot of employees in acting positions. She assumed that the all the new appointments would have Key Performance Indicators (KPIs) attached to them. She asked the SABC to clarify this.

Mr Nicholson explained that discounts were always going to be a sensitive issue. Many of the SABC’s competitors would love to know what discounts the entity gave to some of its advertisers. They would simply beat this and take away some of the SABC’s revenue. This was not a question that the SABC liked answering because it was such a sensitive area.

He said that the Board wanted to fill the vacancies within the SABC, but they had to figure out what the jobs were going “to look like”. The Board just about finished this project. As the positions were being looked at, the KPIs would have to be revised.

Mr N van den Berg (DA) noted that the SABC managed to decrease its deficit by R500 million. This was quite a feat. He asked what they did in order to achieve this. He asked them to identify one or two problems that they came across when they started preparing their turnaround strategy. He said he felt that if incentives were phased out then employees would leave the entity after their contracts ended. The point of the incentive was to keep skilled people at the SABC. He heard that the entity was losing a lot of skilled employees. He wanted to know if it was part of the turnaround strategy to regain lost viewers and listeners. He asked for an update on the DTT implementation.

Mr Harris answered that the Board could not claim all the credit for the decrease in the SABC’s deficit as the interim board played a big role as well.

Mr Golding said that the turnaround strategy included long term and short-term measures. The short-term imperative was to improve the cash flow of the business. This showed in the decrease in the entity’s deficit. The SABC also focused on cost containment on the supply side and the demand side. The supply side showed that people were acquiring things that were not necessary. The cost containment plan looked at what was necessary. On the demand side, the SABC strengthened its internal control system and therefore eliminated wasteful and fruitless expenditure. This decreased the deficit. The SABC also focused on better ways of managing its debtors and creditors books. This had a positive impact on the SABC’s financial position. On the long-term side, the Board wanted to focus on repositioning the SABC as a successful organisation in the digital media environment.

Mr Nicholson added that Mr Harris was involved in getting the SABC out of a sports rights deal that would have cost the entity over R400 million in future years. He did not know if this was the correct place to bring it up, but sports rights cost the SABC approximately R500 million a year in losses. The government had to find a new model on which to fund sport in South Africa, rather than simply relying on the public broadcaster to do it. 

Ms O’Neil addressed the question on retaining viewers. The SABC wanted to implement a network strategy for programming. The Board wanted to look at the platforms that they had so they could retain the audiences they were losing to competitors.

Mr Nicholson added that there were plans to get viewers back. The SABC employees in charge of content had a plan to do it; however, the Board could not share the information with the Committee.

Retention Bonuses
Mr Nicholson informed Members that the retention strategy focused on how to retain skills within the organisation. It was a separate contract, fully taxable and the SABC was allowed to end the bonuses on a months notice. The bonus strategy was implemented towards the latter part of 2008, stemming from a need identified by the SABC to retain “hot” skills, scarce skills, business continuity skills, and critical skills.

The strategy cost the organisation approximately R15 million a year, but was now being reduced on an annual basis. The Board passed a resolution to withdraw the retention strategy. No new retention contracts would be issued and there would be no renewals of existing contracts until a new retention policy is approved.

Discussion
The Chairperson reminded the SABC that Mr van den Berg asked them how they intended to keep skills within the SABC if they were phasing out the incentives plan. He worried that employees might leave when they realized they were not going to receive retention bonuses. He added that he wanted to know what the current status quo of the bonuses was given that they were supposed to be phased out.

Mr Harris answered that it was typically best practice to move to a cost to company scenario and to have performance incentives and bonus. It was in this context that the SABC was moving towards labour best practice in terms of remuneration and benefits. It was pointed out that a retention bonus should only be given in relation to certain scarce skills areas. This was why the current remuneration strategy was being reviewed. The Board wanted to eliminate areas where people were getting retention bonuses when their skills were not scarce enough to warrant a retention bonus. This was an area of weakness that was in the process of being addressed. The number of retention bonuses was decreasing with every passing year. The SABC was aware that there were certain scarce skills that had to be retained within the entity through retention bonuses.

Dr Ngubane added that the retention bonuses had to be part of the overall compensation policy that would determine the structured payment package, the variable pay and the incentive scheme. 

Mr Gina said that the turnaround sub-committee had received a list of people that were currently receiving retention bonuses. After looking at the list, the sub-committee thought they could make a recommendation to the Board to cut some retention bonuses. However, after talking to SABC employees they realized that many employees received retention bonuses because they had
specialised skills. These people were also given certain titles such as general manager even though they were not. This had to be done to attract those specialised skills to the SABC. He was aware that there were some skills that did not need to be retained.

The Chairperson commented that he hoped the Committee would not be seeing a report in the future that showed there were still a lot of SABC employees receiving retention bonuses. 

Report on Subsidiary Companies
Mr Nicholson said that this information was covered in note 9 of the SABC’s financial statements for the years ended 31 March 2010.

The SABC’s subsidiaries included SABC Airwave Travel (Pty) Ltd, Auckland Programme Trade B.V, Astrasat (Pty) Ltd, Skenia Telematics, and Rugby Broadcasting (Pty) Ltd. SABC Airwave Travel and Auckland Programme Trade B.V were the only operating subsidiaries of the SABC. Astrasat, Skenia Telematics and Rugby Broadcasting have not traded and were not operating. The SABC was in the process of discontinuing, liquidating, and deregistering the operations of most of the subsidiaries. The SABC Airwave Travel’s operations would be continued.

Discussion
Mr van den Berg asked when the SABC was going to get rid of its dormant subsidiaries.

Dr Ngubane answered that the SABC was in the process of initiating the appropriate steps. However, they did not know what rights still resided in those subsidiaries. The Board was busy with this process and hoped to finalise it very soon.

Mr Nicholson added that for the SABC to unwind itself from Astrasat, Skenia Telematics and Rugby Broadcasting was relatively easy, but they did not do it because it cost money to deregister and it was not costing the entity anything to leave the subsidiaries alone. The SABC was in the process of requesting deregistration for those three. The SABC was going to take a little longer to deregister Auckland Park because it was situated in Auckland and the entity had to go through a legal process.

Progress on the Auditor-General’s Investigation
Mr Cedric Gina, Board Member: SABC Board, referred Members to the Status of Recommendations Made by the Auditor-General (AG) report. The report referred to the underlying causes of the problems that related to supply chain management. The AG raised issues regarding the SABC’s quality of reporting. The SABC was required to ensure that systems were relevant and reliable, they had to develop a policy for maintaining records, the entity had to identify the types of reports required and the purpose for which they were required, they had to develop a policy for the quality and frequency of management reporting, and they had to ensure procurement policies were approved and implemented in line with the policy framework. A performance reporting framework was developed, which had to be integrated into meeting agendas. Training was underway for employees in the supply chain management value chain. 

The AG also raised a concern about the SABC’s governance arrangement, but more specifically about the effectiveness of the entity’s internal audit, its internal control frameworks, and the effectiveness of the enterprise’s risk management. The SABC’s internal audit function sought permission from the Audit Committee Chair to follow up on actions in progress by the Special Investigative Unit (SIU). The SABC’s internal audit would be undertaking a fraud awareness campaign during Fraud Awareness Week.

The AG questioned whether there was adequate leadership oversight. This included leaderships monitoring of performance, the promotion of ethical behaviour, monitoring of compliance, preventing an organisational culture of impunity, and acting decisively to correct deficiencies. The Board had to ensure that a system was approved and in place, and thereafter to monitor compliance through quarterly reviews.

The AG was concerned that the SABC’s problems with its quality of reporting, effective governance arrangements and leadership oversight resulted fruitless expenditure. They also thought the concerns had to be addressed by focusing on improving human resources initiatives. All of the AG’s concerns were covered in the report.

Discussion
Ms Michael noted that the SABC said that all the issues regarding irregular expenditure had been sorted out. The AG’s report said that there were still some matters that were outstanding. This was a contradiction. She asked if all the reasons for the irregular expenditure had been sorted out. She had a question and answer session with the Minister on 10 November 2010 where they discussed the SABC’s turnaround strategy and what the way forward was regarding finance. The Minister answered questions of hers specifically on irregular expenditure.  She asked the Minister if legal action would be taken against people that were found to be behaving negligently. The Minister assured her that he was having ongoing talks with the SABC Board regarding irregular expenditure and said that legal action would be taken against these people. She thought this was a step in the right direction, as employees had to know that there would be consequences for their actions.

Mr Harris replied that part of the brief to the SIU was to investigate these cases. These cases were handed over to the SIU because the SABC did not have the legal capacity to deal with them. Where there was criminal breach, legal action would be taken and the cases would be pursued. A lot of procurement contracts within the SABC were being reviewed to see if they were irregularly granted.

Mr Gina acknowledged that the AG said there were outstanding matters that had to be resolved. When the Board presented to the Standing Committee on Public Accounts (SCOPA), the SIU was in attendance. The SIU then took it upon them to help the SABC with the investigations. Initially, the AG’s office was not co-operating with the SIU, but they were working hand in hand now. The SABC did not know why the AG’s office did not want to co-operate at first. There were currently eight dockets that were with the commercial crimes unit that could go to court any time now. There was a lot of information that the SIU was finding out. The SABC would provide the Committee with the information once the cases were resolved.

Ms S Tsebe (ANC) noted that the SABC’s internal audit function was going to seek the permission of the Audit Committee Chair to follow up on actions in progress by the SIU. She asked the Board to elaborate on this. Also, one of the SABC’s corrective actions was to undertake a fraud awareness campaign. She asked what they wanted to achieve with the campaign. She asked whose responsibility it was to ensure the effectiveness of the SABC’s policy frameworks for supply chain management.

Mr Nicholson replied that the SIU found that there were weaknesses in the SABC’s control systems. The internal audit unit would be performing a follow up audit on these matters. This would be part of the audit programme for the next three years. Internal auditors would follow up on all the control breakdowns and ensure that solutions were put in place.

The fraud campaign would look at what fraud is, what the controls are and the mechanisms for reporting fraud within the organisation such as the hotline.

Mr Nicholson answered that the policy review function, other than the delegation of authority framework, was the responsibility of the accountable executive. For example, the finance function would fall under the Chief Financial Officer. Each function was the responsibility of its divisional head.

Mr van den Berg noted that there was a significant decrease in the number of consultants being used by the SABC. However, a lot of money was still being spent on consultants. The AG noted that the Board appointed some consultants without following supply chain management policies and the Public Finance Management Act (PFMA). He asked what corrective actions were used to limit the number of consultants used by the SABC.

Mr Nicholson explained that one of the reasons that there was a decrease in the number of consultants used was because procurement processes had been tightened, specifically regarding the selection of consultants. The second reason that a business case had to be signed off by the finance unit before a consultant could be brought on board. Thirdly, the consultant’s contract had to include a performance contract with defined deliverables as well. 

Mr van den Berg commented that it was necessary to learn from the AG’s recommendations when the entity received a negative report from him. The intention was to learn and to prevent things from going wrong in the future. He asked what the Board learned from the report.

Dr Ngubane answered that one of the most important lessons the Board learnt was that if the internal audit unit was weak then there would be problems. The SABC’s internal audit unit was focused on creating an effective internal audit structure. The fraud awareness campaign aimed at getting the staff to monitor internal audit controls so the Board could know ahead of time if there were any issues. The process for appointing a head of audit has been started.

Mr Harris added that one of the issues had to do with the structure of the SABC. Previously the head of internal audit reported to the GCEO. This person was an acting position. It was becoming good practice in a number of State Owned Entities (SOEs) that certain functions of internal audit were outsourced. This was done on a preliminary short-term basis. This was a proposal that would be discussed at the next internal audit committee.

Ms O’Neil commented that Board incorporated what they learnt from the AG’s report into the SABC’s turnaround strategy. The basis of the turnaround strategy was to bring the culture of broadcasting back into the SABC. The strategy focused on leadership and governance, and financial management and controls.

The Chairperson asked the Board to elaborate on conflict of interest cases within the SABC.

Mr Gina replied that there were just over 1600 employees in the SABC that were found to have other business interests. Many of these employees left the SABC. The SIU was still investigating the employees that remained in the organisation. Also, Mr Nicholson as the Acting GCEO wrote a memorandum to staff informing them of the conflict of interest matter. Employees were told to declare their interests in other companies. Many employees were found to be directors of dormant companies. Very few of them were part of companies that were active. The SIU found four more employees with conflicts of interest that the AG did not pick up.

The Chairperson clarified that this was an ongoing project.

Mr Gina clarified that the Board would be able to give the Committee a report with a full list of names the next time they came back to Parliament.

The Chairperson asked what actions would be taken if the employees failed to comply with declaration of interest policies and procedures.

Mr Nicholson answered that the Board was now aware of which employees had interests in other companies. This was being reconciled with the employees’ own declarations. Employees would be confronted if it was found that there were inadequate declarations. There would be consequences for fraudulent non-disclosure.

Ms Tsebe noted that the Board had good intentions but they could not keep working without timeframes. She worried that there were a large amount of issues that were still ongoing. The Board did not mention timeframes in which the matters would be resolved.

Mr Gina responded that the Board was going to hold a meeting on 13 December 2010 to discuss a lot of the issues raised in the meeting. Decisions would be made at this meeting.

The Chairperson reminded the SABC that they would be appearing in front of the Committee early next year to present their strategic plan to the Members. The SABC had to have clear timelines of all the issues and when they would be dealt with by the time they appeared before the Committee.

Ms Muthambi asked if SABC employees were allowed to do other work for the SABC.

Mr Nicholson explained that the contracts required disclosure of interests; it did not prohibit working for the SABC, particularly regarding freelance contracts. There was no absolute ban on employees doing other work for the SABC.

Ms Muthambi asked if this applied to management and other senior executive employees within the SABC. For example, would the CFO of the SABC still be allowed to do consultancy and auditing work for the SABC? Her understanding was that the declaration of interest was to avoid a conflict of interest.

The Chairperson asked the Board to explain the SABC’s position on this matter.

Mr Nicholson answered that the person may not be involved in the decision regarding the rewarding of the work. The matter had to be taken to the person’s boss in terms of the Delegation of Authority Framework. The employee could not sit on the committee that had the duty of deciding who the tender would be awarded to. Also, the manager had an obligation to manage the conflict of interest situation. This was how the current framework worked.

The Chairperson said that the Board had to be clear on what the policy said. A line had to be drawn through the day-to-day operations of the employees. He feared that there would be more conflict of interest issues. The Board had to review its declaration of interest policy, as it needed to be clarified.

Mr Nicholson said there were two choices. The entity could allow it and say that there needed to be “upward” referral to the employee’s manager, or aside from freelance work, it had to be banned.

Ms Killian said that part of the problem regarding disciplinary cases had to do with conflict of interest issues. The time had come for the SABC Board to take this matter very seriously. They had to clean up the organization and attract employees on the basis of their skills. They had to stop processes that undermined other processes within the organization. It was time for the Board to say to its employees that they were not allowed to conduct any other business operations.

Mr van den Berg agreed with Ms Killian. He said that a line had to be drawn regarding the type of business that employees could conduct with the SABC. However, there were “creative” employees within the SABC that did many things within the entity. He was worried that the SABC would lose its “talent” if they were not allowed to do other work for the SABC.

The Chairperson agreed but said that it was still concerning that there were over 1600 employees out of 5000 employees at the SABC that were found to have conflicts of interest.

Ms Pippa Green, SABC Board Member, added that there was a difference between freelancers and employees doing business with the SABC.

Mr Gina said that the Board would welcome some time from the Committee to go back and discuss the matter.

The Chairperson hoped that when the Board came back to the Committee, they would help Members to understand the policy better.

Report on Salary Increases of Senior and Middle Management
Mr Nicholson stated that page 16 of the report gave a summary of the annual increases (see report, page 16). Generally the salary base pay increased by inflation plus 1% on average. In the last two years, in order to reduce the cost of middle and senior management, salary increases have been moderated. The report showed a breakdown of the executive remuneration in total. The corrective actions going forward included the implementation of a new operating model within the SABC and the efficiency of the portfolios. This focused on how much output was actually generated through various managers for the money they received. 

Discussion
The Chairperson noted that there were no questions on this section.

Report on Disciplinary Cases
Mr Gina informed the Committee that disciplinary procedures were making it cumbersome for management to conclude the disciplinary cases in a short time. A new policy was being developed to expedite the process. Regular reports regarding the cases were submitted to sub-committees and the Board. In April 2010 there were approximately 32 outstanding cases and at the end of June 2010 there were ten cases. A number of suspensions had been reduced so there were no more than ten suspensions. By the end of the financial year, there would be no more suspensions. The Board was happy that there had been considerable drive to resolve the cases.

Discussion
The Chairperson noted that the high level report submitted to the Committee by the SABC did not help Members to understand what was happening with the cases. He appreciated the report but he wanted the SABC to take the Committee through the fourteen cases mentioned in page 113 of the 2009/10 Annual Report.

Mr Gina replied that the case of the Head of Procurement was raised in the report. The case was resolved and a recommendation was sent to the Board approximately two or three months ago to dismiss him, which the Board accepted. All the other matters were addressed and concluded, except for one other issue regarding the General Manager for News. The case was still in progress and was expected to be completed very soon.

Mr Nicholson provided a case-by-case detailed analysis of each case. The first case of R89 800 000 had to do with the procurement of legal services for the collection of TV license debt, which was considered a revenue contract. The AG was of the opinion that it was a procurement contract. Cases 2, 3 and 4 were all cases where the SABC had contracts with a sports production company (a boxing company) for title fights where the contracts were signed after the event. It was in terms of the overarching agreement that the SABC had about the content and how to produce the boxing events. The manager covering the agreement thought that the overarching contract covered the event, but the internal audit function was of the opinion that each fight should have been covered on a case-by-case basis. Cases 5-9 were a series of contracts that were signed by the broadcaster but not by the legal department. Case 10 was a contract that was signed with NBC where they had a right to extend the contract for a further two years without reverting to the SABC. This went into a disciplinary process with Mr M Mbebe. The matter expired when his contract expired. There was a series of other international content write offs for R8 293 000 (case 11) that were impaired at the year-end. Case 12 was where the SABC did not secure all the licenses for Digital Terrestrial Television (DTT). He could not remember how losses were incurred for cases 13 and 14. There was a full report that could be made available to the Committee.

Ms Michael was aware that the Solly Mokoetle case was still ongoing so the SABC could not discuss it, but she had heard on the news that Mr Mokoetle’s disciplinary case had started. She asked how far the case was and when it would be finalised. She noted that Mr Dali Mpofu was suspended on 7 May 2008 until the settlement in August 2009. His salary during that time was R2.68 million. She asked the Board to elaborate on this.

Ms Muthambi noted that the SABC had disciplinary codes and procedures that were used to correct the behavior of employees. She wondered how it was that certain employees could be suspended for months at a time. There was even a case where someone was suspended for 39 months with pay. This was considered fruitless and wasteful expenditure. What were the financial implications for this?

Mr Gina replied that there were a number of disciplinary cases that the Board was working on with the SABC’s Human Resources section to reduce. In September the Board received a letter from human resources saying there were only suspensions from the year 2009 that had to be dealt with. There were some new cases in 2010. Some of the cases were with the CCMA and the SABC did not have control over when they concluded their matters. The Board thought the disciplinary process was cumber some and was currently looking for a new procedure that would make the disciplinary process move faster. There were some senior managers that were not very cooperative when human resources approached and asked them to chair the disciplinary procedures. It was always a problem to find four people to sit and listen in on a hearing.

Ms Killian stated that it was very important for all employees to know that they could not transgress the PFMA and that there would be consequences if they did. The AG’s report said that the SABC lacked “a tone at the top”, which had to be one of accountability and consequence for failure. This had to be established within the entity. There should be an end to the cases where there were long suspensions of employees. This was not only a human resource matter; it was a risk and financial matter as well because funds were being wasted. The SABC had to ensure that they used their resources effectively.

The Chairperson added that the Board had to give the Committee a report on the disciplinary cases that were outstanding and those that were resolved so the Committee could measure the entity’s success. He hoped to see an improvement in this matter.

Performance Review of the SABC Board
Mr Gina referred the Committee to page 19-27 of the report. He said the report showed that the Board and its sub-committees were doing their work. The Board consisted of nine sub-committees (see page 19). The rest of the section looked at the number of meetings that were held by each sub-committee and the key decisions that were made. The Board was satisfied that this showed that they were functional in terms of performing their fiduciary duties. The Turnaround Sub-Committee had more meetings than the other sub-committees due to its responsibilities, which was to focus on issues raised in the AG’s report and to monitor the implementation of recommendations and turnaround strategies.

The Board held a number of formal meetings and a few special meetings to address certain issues. The Board was happy that it managed to make decisions that help the SABC to move forward. If the Committee compared the SABC now with what they were last years, they would see how much they achieved. He thought this was due to the decisions taken by the Board after meetings held by the sub-committee or the Group EXCO.

In terms of the functionality of the Board, it was functioning very well and sub-committees were meeting and making recommendations to the Board.

Dr Ngubane admitted that the Board had experienced problems previously. The Board discussed these issues and the shareholder said that it would help the Board to work through its difficulties. There were things that were said that were very unfortunate, which showed there was dysfunctionality. But, now the Board worked well together and was functional. The Board has overcome its problems.

Mr Gina added that the Board had its challenges, but they wanted to put it on record that they made a commitment to the shareholder and the corporation as board members that they would continue to discharge their responsibilities as an accounting authority and in compliance with the relevant legislation including the Code of Good Practice on good governance.

Discussion
Mr van den Berg thanked Mr Gina for the presentation; however, he still felt like he was in the dark. He asked what the sub-committee’s had achieved. What did every sub-committee do to help the SABC with its turnaround?

Mr Gina answered that all the sub-committees held meetings and were making recommendations to the Board.

The Chairperson asked the SABC to explain the situation of the Board’s appointment of the new Head of News within the SABC.

Mr Gina replied that this was a matter that was still in the public domain but the Board wanted to report that they took a decision after a lot happened in the public and within the Board. A board meeting was held where a recommendation was made to appoint the Head of News. The appointment was then made on 6 September 2010. The Board never had an issue with Mr Phil Molefe as a person or with his performance in the interview.

The Chairperson asked the Board to take the Committee through exactly what happened before Mr Molefe was officially appointed.

Mr Gina explained that the interview process was started in May 2010. There were four candidates that were shortlisted and interviewed again. The Board did not complete the scoring of the candidates that day and agreed to meet the following week to finalise it. Board members met the following week and a discussion took place, as some Members of the panel raised a concern about what the news division should look like. This task was delegated to the GCEO. A meeting was going to be held on 3 June 2010 to discuss the appointment and the matter of the news division. Unfortunately, just before the meeting was scheduled to take place an announcement was made that the new Head of News was appointed. The Board felt that the matter had to be discussed further and the appointment process had to continue. A meeting was held on 6 September 2010 where a recommendation was made on the appointment. The Board accepted the recommendation and Mr Molefe was appointed as the Head of News. The Board admitted that they may have made mistakes in the past but they were moving forward. The major concern was that an announcement was made to the public before the Board could apply its mind and make a decision concerning the appointment.

Mr Harris added that it needed to be made clear that the decision taken by the Board on the matter was not ratification or a confirmation of the announcement. The Board passed a resolution on 22 May 2010 confirming that Molefe had not been appointed, as the decision had not been made by the Board. When the Board passed a resolution on 6 September 2010, it was an appointment as of that date.

Ms Killian said that the Committee was grateful for the SABC Board members that were committed to steering the SABC towards the right path. She hoped that the vacancies on the Board would be filled soon in order to lessen the pressure on the existing board members. She thanked the Board for listening to the Committee’s recommendations and concerns. Members and the Board had a very constructive discussion today. The Committee was happy that the SABC was in the process of implementing a turnaround strategy. The Board said that Mr Phil Molefe was appointed on 6 September 2010. She asked if he was paid fully from the day his appointment was announced, just before 3 June 2010 or if he was paid from the date of his formal appointment on 6 September. If he was paid from the day of the announcement, it would be deemed an irregular expenditure because he was not yet formally appointed by the Board. How long was the term of office that he was appointed for? She believed that the interim board had made a decision that any new appointments would receive contracts for terms of office that were no longer than three years. Did the Board condone the appointment process leading up to Mr Molefe’s appointment? Were the other three shortlisted candidates given a fair opportunity to present themselves as a possible Head of News?

Ms Michael stated that she had it on good authority that not all the candidates had the opportunity to be properly scored and heard before the appointment of Mr Molefe. She agreed that Mr Molefe’s appointment was official and not a ratification of the early announcement. However, Mr Molefe earned a salary from the time he was appointed by Mr Solly Mokoetle. He signed a contract with the SABC regardless of whether the Board viewed his appointment at the time to be correct or legal. The fact of the matter was that he was earning a salary and this brought into question whether this was an irregular expenditure. The payment was in contravention of the PFMA and the AG would have to list it as an irregular expenditure. She wanted more clarity on the situation. She also wanted to know how the Committee could find out exactly what happened with Mr Molefe as the Members had heard different stories from the Board and the media. She received two reports on Mr Molefe’s appointment that were contradictory and Mr Mokoetle was not available to explain what happened, as he was involved in a disciplinary hearing. She wanted to see a full report on the Mr Molefe’s appointment. The whole process of the appointment from the beginning to the end was unsavoury. She was glad that the Board was there so they could have an open and honest discussion about the matter. 

Mr Gina addressed both Ms Killian and Ms Michael’s questions concerning Mr Molefe. He explained that it was important to debunk the idea that the other shortlisted candidates did not receive a fair chance to be interviewed or scored by the Board. The shortlisted candidates were interviewed properly by the Board. This process was a bit delayed because when the panelists were appointed in the board meeting, some board members were out of the country and there was a feeling that the Board should wait until all members could be present. It soon transpired that members were never available at the same time. It was decided that the interviews would be done when the majority of board members could be present as there was an urgent need to fill the vacancies. All four of the candidates were interviewed in one day; however, the panel could not complete the scoring as one of the panelists had to leave because he had another commitment. The interviews were completed on a Friday and the panel agreed to meet the following Monday to complete the scoring. The meeting was held in Midrand and the panel discussed what the news section in the SABC should look like. The panel decided that they would take a certain recommendation to the Board on 3 June 2010. It was now public knowledge that an announcement was made before 3 June that Mr Molefe had been appointed as the new Head of News. The Board met on 22 May 2010 and agreed that the appointment was not done according to what the law said should happen. The panelists were supposed to make a recommendation to the Board and the Board was supposed to make the final decision. It was decided that the Board would proceed with the correct process and the appointment of Mr Molefe became null and void. A number of meetings were held after this decision. During one of the meetings that were held to complete the scoring of the candidates, two of the panelists decided to abstain. The scoring was then not completed. Another meeting was held and board members agreed that they were giving themselves powers to disappoint directors. They thought this was unfair. As a result, the scores were completed by the three directors on the panel. Some board members decided to abstain from the process but the majority of board members supported the view that Mr Molefe was the best candidate for the Head of News at the SABC. The appointment was made on 6 September 2010.

Mr Gina stated that it was unfortunate the Ms Michael’s was in possession of two contradictory reports. He did not know which reports she was referring to because the source was not mentioned.

Mr Gina answered that Mr Molefe earned a salary from the announcement in May to September when he was formerly appointed. This was matter that the SABC’s management had to deal with. The Committee had to be mindful that this was not an easy matter as Mr Molefe had signed a contract when the announcement was made in May. He assured members that the Board would take the appropriate actions to manage the situation. The Board wanted to be careful with how they dealt with the information, as they could be open to litigation.

Ms Pippa Green, SABC Board Member, added that this was a painful event for the Board to go through. The Board’s concern was to restore the integrity of the news section within the SABC. 

Mr Gina assured the Committee that the Board did not have any personal issues with Mr Molefe and that he was the best candidate for the job.

Ms O’Neil commented that she was a businessperson and she viewed things from a business perspective. She wanted to “play the ball, not the player”. During May and September, there were so many things that happened and so many things were reported in the media. The appointment of Mr Molefe was made on 6 September when the Board realised they could no longer paralyse the entity with this matter. It would not have been a productive way to deal with things. The Board wanted the SABC to move forward.

Ms Michael agreed with Ms O’Neil that one should play the ball and not the player. However, the Committee did not have a problem with Mr Molefe; they questioned the appointment process that the Board followed. She read in the media that there was political pressure to make the appointment as quickly as possible. She asked if this was true.

Mr Gina answered that he did not know how political pressure was measured. He noted that the Member found this information through the media. He did not think that she should remember everything that was said in the media. Many things said by the media had been proved wrong. He had not been approached by any political figure asking him to make a decision on the appointment. The Board applied its mind independently on the matter. 

Ms Killian reiterated that the issue was not about the individual, but about making sure all the processes and procedures within the SABC were followed correctly. Matters had to be brought before the Board in the correct fashion. She said she still did not know how long Mr Molefe’s contract was for.

Ms Vos replied that the documents that were given to members at the beginning of the meeting included a report on the News Sub-Committee. There was no doubt that the process regarding the appointment of Mr Molefe started off as a complete and utter debacle. There was no doubt in her mind that there was a contravention of the memorandum and Articles of Association of the SABC, the PFMA and the Delegated Authorities Framework. This was reported to the shareholder and to the Committee. This matter was now with the Committee and it was up to the Members as to whether they wished to institute an enquiry in terms of the Broadcasting Act. The debacle paralysed the Board and prevented them from undertaking their fiduciary duties. It appeared to her that certain board members were feeling pressure to perform their responsibilities and obligations to the SABC and the government. There was a realisation that this could not go on. The matter had been reported to Parliament and the Committee had not done anything about it. Eleven out of the twelve non-executive directors presented a report on the matter to the Committee, but nothing happened. The Board decided that they had to make a decision and move forward.

She understood the concerns regarding Mr Molefe’s contract. She had asked the now suspended GCEO if she could see the contract but she was completely ignored. She did not know the contents of the contract.

Ms Vos noted that the announcement of the appointment had been made early in May, but Mr Molefe was explicitly told on 22 May 2010 after the board meeting, that his appointment was null and void. He should not have had an expectation for more than a day or two; he should have known the appointment was not legal. A press conference had even been held on 22 May to announce this. However, he did get paid from the day of the announcement. It was up to the Acting GCEO to resolve the matter. The payment would be viewed as fruitless and wasteful expenditure.

Ms Michael commented that Ms Vos should not think that the Committee did not do anything to address the situation. When the Committee first heard about the matter, the first thing she did was to write to the Public Protector to ask for a full investigation into the appointment. There were certain Members within the Committee that took the matter very seriously and took the necessary steps to address the matter. 

Ms Tsebe asked if Mr Molefe had been informed of the consequences of his appointment i.e. that his salary would be considered an irregular expenditure. He did the Board intend to correct this? She noted that the Technology and DTT Sub-Committee had failed to meet on a few occasions. She asked the Board to explain why. Their inability to meet could have impacted on the timeline for making some decisions. She asked for an example of this.

Mr Nicholson informed the Committee that he met wit Mr Molefe after his appointment on 6 September 2010 and discussed the matter. This was an ongoing discussion and had not yet been resolved.

Mr Gina replied that Mr Magatho Mello was the chairperson of the Technology and DTT Sub-Committee, but he resigned from the Board. This was why some of the sub-committee meetings could not take place.

Ms Muthambi noted that there had been certain Board members that had not disclosed their interests. She asked if all Board members had now declared their interests.

Mr Nicholson replied that all board members had disclosed their interests in the current financial year.

Other Matters
The Chairperson informed the Committee that during a ten minute break that the Committee was granted, representatives of the National Treasury were trying to get Members to ask certain questions that they had come up with. He explained that the Committee respected the National Treasury, but if they wanted to participate they had to make the necessary arrangements with the Committee. The National Treasury had to go through the Committee Section if they wanted to participate.

Mr Gina replied that the SABC was surprised by the National Treasury’s conduct, as it left much to be desired. They would take the matter up with their Minister.

Mr van den Berg wanted to make a few broad remarks concerning the information from the presentation. He said that what the Committee had heard was “astounding”. However, the presentation did not given any clarity on the position of the SABC. If an ordinary person heard what the SABC said, they would not have understood what was going on. He was not sure that the SABC was in any position to move forward. If this was a morale boosting effort from the Board to the personnel, then they did not succeed.

Mr Peter Harris, SABC Board Member, noted that there was a trend for the Committee to use the Board as “punching bag”. An enormous amount of work had been done by the Board. They accepted that they should be criticised for things that had gone wrong in the past, but an enormous amount had been achieved by the SABC. The allegation was that the documents were “just a set of words”. However, it was a set of concrete action plans. If details were required about each strategy, the documents were available and ran into hundreds of pages. The Board was happy to supply this information. Recognition had to be given to the Board as well as the Interim Board for the fact that they had reduced the SABC’s deficit from R950 million to R450 million. The entity also received an unqualified audit and an exceptional amount of things had been achieved. The documents showed that despite the enormous challenges faced by the Board, a lot had been achieved. It was the current Board that brought in the SIU to address maladministration, corruption and mismanagement. The details would be made available once the investigations were concluded. Once Members perused the documents properly, they would see a set of achievable objectives. It should not be forgotten what the Board inherited.

Ms Michael wanted to make it clear that the Committee was not there to “punch” them down or to criticise the Board all the time. They were there to exercise their role, which was to perform oversight on government entities. Every time the Board did something right, Members thanked and encouraged them. Every time the Board came to the Committee, they thanked the members for staying on and not resigning. The Committee knew how much work board members were putting into the entity and they thanked them for it. Perhaps if Mr Harris had started out the presentation saying what he just said about halving the deficit, things could have taken a completely different turn. Members only received the documents when they walked into the meeting. It was not fair of the Board to expect the Committee to know what work the Board has done. The Committee was still trying to make sense of what was contained in the documents. It was very difficult for the Members to perform their oversight role fairly and in a manner that did not offend the Board. Clearly, the Board was offended, as the Committee had just been told that they were using the Board as a punching bag. This was not what the Committee was doing. Members were asking questions because it was their oversight function and the Board should not take offence to this. She did not think Members should feel guilty about asking questions or making comments about the presentation, as that was their job.

Ms Vos answered that it was her understanding that all the documents had been sent to the secretary a week ago.

The Chairperson stated that the documents had arrived on time. However, the documents had to be processed by the legal services of Parliament. As a result, Members only received the documents at the meeting. 

Ms Magazi said that this meant that Ms Michael should withdraw her comments.

The Chairperson explained that Ms Michael did not know the situation with the documents and was talking under the assumption that the documents had arrived late from the SABC.

Ms Michael replied that she would not withdraw her comments. She never accused them of submitting the documents late; she only said that Members had gotten the documents today. It has now been cleared up that the problem was on Parliament’s side. The Committee had to ensure that this sort of thing did not happen again.

Dr Ngubane assured the Committee that the Board had learnt some hard lessons, but that they were working in unity at a very high level and focusing on all the issues that were affecting the Board. He did not think the Board would make the same mistakes again.

The Chairperson thanked the SABC for its presentation. He noted that the Committee saw that there had been a lot of improvements in the entity and that the Board was moving forward. There were a few issues that needed to be resolved. These included the unresolved disciplinary cases, the issue of retention bonuses, and matters under investigation by the SIU. The Committee needed a thorough briefing on the issues uncovered by the SIU once the investigation was finalised. He advised that the unity of the Board should not be at the expense of good corporate governance procedures and the flouting of legal frameworks. The Committee appreciated the work being done by the Board as well as the SABC’s executive managers. This was the time for the SABC to move forward and improve its image.

The meeting was adjourned. 


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