Armscor Management Challenges: Meeting with Armscor Board

Meeting report

The Chairperson welcomed Dr P Molefe (Chairperson of the Armscor Board), Mr H Thomo (Chief Executive Officer, Armscor), Mr J Masilela (Secretary for Defence, Department of Defence) and other attendees to the meeting.  The Chairperson and members of the Joint Standing Committee on Defence attended the meeting.  The meeting was called in terms of the Committee’s oversight responsibility to address the current management challenges implicating the Chief Executive Officer (CEO) of Armscor, which were reported in the media.  In terms of the Armscor Act, the Chairperson of the Armscor Board was the responsible officer.

Dr Molefe thanked the Committee for the opportunity to address the meeting.  Due to the short notice given, Mr Roelf Meyer (a long-standing member of the Board) and Mr S Msibi (Chairperson of the Human Resources Committee (HRC) of Armscor) were unable to attend.

Dr Molefe said that the matter under discussion was a broad topic.  Armscor submitted quarterly reports and an annual report on its operations to the Portfolio Committee and to the Department of Defence.  He had agreed to deal with the issues related to Ms Nthati Borotho (General Manager: Corporate Affairs, Armscor) and on the senior management position reported in the media but not on the management challenges faced by the CEO.  He said that some issues were sub judice because the processes had not been completed.  Individuals were implicated who were not protected by Parliament and the parties involved had to be allowed time to prepare.  He agreed to report on the progress made on the processes followed by Armscor and undertook to return to the Committee to submit a comprehensive report once the matter was finalised.  Armscor was accountable to the Minister of Defence and the Department of Defence on the processes followed.  He considered it to be a travesty of justice if a person under investigation discovered that the matter was discussed in Parliament before given the opportunity to defend himself.

Mr R Sayedali-Shah (DA) asked if sub judice meant that the matter was subject to proceedings in a court of law or subject to an internal investigation.  If the matter was not in court, the Committee had the power and authority to ask questions even if the matter was not yet concluded.  He understood that an internal enquiry was conducted and a report was submitted.  He did not consider the matter to be sub judice and therefore the Committee may ask any questions pertaining to the matter.

Dr Molefe replied that he intended to explain that the process was still underway and there was the potential to prejudice the parties involved if the matter was made public.  The Board was yet to finalise its report to the executive authority and both parties must be allowed to respond before the Board announced its findings.  He said that where serious allegations of this nature were made, both the complainant and the respondent had the right to refer the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA) and to the Labour Court.  Care must be taken that comments were not made that resulted in difficulties for the Board to resolve the matter in a fair and just manner that protected the rights of the parties involved as well as the integrity of the process.  He agreed that the Committee may ask questions but not to the extent that the process will be undermined.  He reserved the right to reply to the questions asked by the Committee.

The Chairperson said that the Committee called the meeting with the Board of Armscor because it was reported in the media that an employee was paid for ten months while she stayed at home.  The Committee had not yet received a report from Armscor on the matter.  He understood that a report was submitted to the Board in March 2008 and the Committee wanted to know what had transpired since then.  He said that Members were entitled to ask questions as the matter was not subjected to the courts.  He asked how far the matter had progressed and who the stakeholders were that still needed to be consulted.  He suggested that Dr Molefe was explicit in his replies as the Committee needed to establish why taxpayers’ money was being used in this manner.

Dr S Pheko (PAC) remarked that the matter had been in progress for a long period of time.  He asked when the internal process will be completed.

Mr Sayedali-Shah said that the agenda of the meeting was a discussion of the management challenges implicating the CEO of Armscor.  He did not understand how the issue can be dealt with if the Committee was not allowed to ask questions pertaining to the competence of the CEO.  With regard to the Borotho matter, he understood that in internal enquiry was held.  He asked when the investigation was concluded, who was mandated by the Board to conduct the enquiry, when the results of the enquiry were submitted to the Board and what action was taken by the Board on receipt of the report on the investigation.

The Chairperson explained that the questions asked by Members were in an attempt to clarify the reasons why the Board of Armscor was requested to appear before the Committee.

Dr Molefe agreed that the matter took a long time to resolve.  He said that the essence of Ms Borotho’s complaint was that she was dissatisfied with the CEO’s management style and complained about the balanced scorecard.  She felt that she was being victimised.  During the interviews with Ms Borotho, other issues arose, which Dr Molefe did not wish to disclose at this meeting but which will be included in the final report on the matter.

Dr Molefe explained that there were several reasons for the delay.  The matter was dealt with by the Human Resources Committee (HRC) of Armscor and the services of an external expert were retained as it was necessary to be seen to be dispassionate.  At the same time, problems arose with regard to the restructuring and transformation of Armscor.  The transformation process had to be completed by 1 April 2008 and involved the integration of several institutions.  The organisational changes affected the Ministry of Science and Technology as well as the Minister of Defence.  The HRC needed to assist with a complex re-organisation process that affected the future of employees and to manage the uncertainties that resulted.  Another major issue was the difficulties that arose with the procurement processes.  This matter could not be set aside as it involved legal issues and had significant financial implications.  Consequently, the Borotho matter was delayed.

Dr Molefe said that when the report was received from the external expert, the HRC felt that not all the issues were covered.  The report was referred back as some witnesses were not interviewed and a technical investigation regarding the use of telephones needed to be done.  When the subsequent report was received in March 2008, the Board was presented with a difficulty as the conclusions reached by the HRC varied from those of the expert.  The Board referred the HRC conclusions back to the expert as it was not clear if the new evidence uncovered affected the findings.  The expert’s report was received in May 2008.

The term of the Board ended before it could finalise the matter.  The Minister of Defence appointed a new Board, which had its first meeting two weeks earlier.  A new HRC was appointed by the Board and given the task to finalise the matter.  The HRC arrived at some decisions, which were considered by the Board.  The Board agreed with the HRC on the issues raised and was in the process of communicating with Ms Borotho and Mr Thomo.  Once finalised, the Minister of Defence, The Secretary of Defence, the Portfolio Committee on Defence and the Armscor staff in general needed to be briefed.

Dr Molefe was satisfied that the matter will be finalised by not later than the first week of July 2008, provided that the affected parties do not decide to take the matter further.  He said that the Board will advise the parties involved to take the matter further if they were dissatisfied with the Board’s decision.  He apologised for the delay but there were mitigating circumstances.

Mr M Moatshe (ANC) noted that Ms Borotho had received a salary for the last ten months and presumed that she was still employed by Armscor.  He asked if she was suspended or fired or if it was her decision to remain at home.

Mr P Groenewald (FF+) said that Dr Molefe did not submit a good report to the Committee.  He understood from the explanation given that the Board did not have the time to deal with the matter because it had other priorities.  He questioned whether the expert did a good job as his report had to be referred back.  He presumed that Armscor had used taxpayers’ money to appoint the expert.  He could see no reason why the Committee cannot be given a report at this time, before the appeal process was completed.

Mr Sayedali-Shah was not satisfied that his earlier questions were answered.  He asked if an internal investigation was done.  He wanted to know who mandated the appointment of an external expert.  He asked whether Armscor had a grievance procedure in place as it was of strategic importance to the country that Armscor functioned well.  He asked who the expert was that was appointed.  If recommendations were made, it was the responsibility of the Board to act on the findings.  He said that if the members of the Board were unable to deal with this matter, they should not be on the Board.  He said that if the CEO lacked the capacity to lead the organisation, he must go.  He said that excuses were not acceptable.

Dr Molefe replied that an internal investigation was held.  The external expert appointed was Mr Jerry Kaapu from the legal firm Bowman Gilfillan.  The allegations were of the nature that required expert, objective and impartial handling.  He said that the competence of the CEO was a separate matter that fell outside the issue under discussion.

Dr Molefe said that the laws made by Parliament were respected and the process must be followed.  Short cuts cannot be taken or the process will fail.  The Board of Armscor wanted to ensure that the due process was followed, even if it was slow and tedious.  He said that members of the Boards of all state-owned entities were appointed on a part-time basis.  Difficult decisions had to be made and the restructuring of Armscor had to be dealt with by the deadline of 1 April 2008 that was imposed.  Members of the Board had to allocate their time and it was not a question that they did not want to do the work.  A balance needed to be found as the Board did not want to be in the kind of situation the SABC found itself.  He said that the Board took the matter seriously and regretted the delay.  Ms Borotho was anxious over the length of time it was taking to resolve the matter as well.

Dr Molefe said that it was not fair to make disparaging remarks about a highly respected firm of lawyers as the expert could not have known about witnesses that only came to light after the report was completed.  He confirmed that Ms Borotho was not suspended.  She wanted her complaints to be investigated and requested leave of absence because she found the environment at work impossible.  The CEO could not be suspended as well because he was the accounting officer for the Armscor transformation process.  If he was not in place, the transformation process would have failed.

Dr Molefe said that Armscor respected Parliament and understood the concerns of the Committee regarding the matter.  He gave the assurance that the matter will be resolved within a month.

Mr L Diale (ANC) asked who authorised the appointment of the external expert.

Dr E Schoemann (ANC, Chairperson, Joint Standing Committee on Defence) said that the Committee had to know how taxpayers’ money was being spent as part of its oversight responsibilities.  The Committee was entitled to know how the Borotho affair affected the efficiency of Armscor.  He said the matter took too long to resolve and Ms Borotho was on paid leave without making a contribution towards Armscor during this time.  The Committee needed to know the intricacies of the matter before pronouncing itself and must maintain its interest until it was finalised.  However, the Committee can not pronounce on the matter until the Armscor process was concluded.  In order to make a constructive contribution, the Committee must urge the Board of Armscor to submit a report as soon as the matter was finalised and must then be able to interrogate the Board and management of Armscor.  He agreed that it would not serve the interests of anyone if the Committee was embroiled in the details of the case before the matter was finalised.  Because some of the details were in the public domain, the Committee had a duty to discuss the matter with the management and Board of Armscor.  Once the Armscor process was completed, the Committee will pursue the matter in depth and members of the Board and management will have to appear before the Committee again.  It was not in the interest of the defence industry, the Department of Defence and the country if the matter was pre-empted.

Mr Groenewald agreed that the labour laws must be complied with.  He said that the law required any investigation to be concluded as soon as possible or else it may be deemed to be an unfair labour practice.  He understood that the report from the expert recommended that payments were made.

Dr Molefe said that no mention of payments was made.

Mr Groenewald requested clarity on the statement made by Dr Molefe that witnesses only came forward after the expert’s report was completed.  He asked what recommendations were made by the expert.

The Chairperson suggested to Dr Molefe that Mr Diale’s question on who authorised the external investigation was replied to first, followed by the sequence of events.  He noted that a new Board was constituted before the matter was finalised and asked if the expert was appointed by the previous Board.

Dr Molefe explained that the previous Board enlisted the services of Bowman Gilfillan.  When the external expert’s report was received, the Board was near the end of its term.  On receipt of the report, the HRC raised further questions and wanted to start a new investigation.  The Board however decided to refer the questions raised by the HRC to the external expert to decide if the conclusion would be fundamentally different.

Dr Molefe confirmed that Armscor had an internal conflict resolution procedure.  The difficulty was that the CEO was responsible for the internal procedure and in this case, the matter had to be escalated to the Board because the CEO was implicated.  It was recommended that Armscor reviewed its practices and created the necessary mechanisms to address the weakness identified in the conflict resolution procedure if the CEO was implicated.

Dr Molefe explained that the new Board was appointed in June 2008.  He and Mr Roelf Meyer were the only two remaining members of the previous Board.  The new Board had to deal with a very complex issue.  The HRC had considered the report and the Board had endorsed the recommendations made.  The process had now reached the stage where the Board’s decision can be communicated to the complainant and the CEO.

The Chairperson asked what the term was of the Armscor Board.

Dr Molefe replied that the Board was appointed for a term of three years.

The Chairperson asked what the deadline was for submitting the final report to the Minster of Defence.

Dr Molefe replied that the deadline for finalising the report was 2 July 2008.  The report will then be submitted to the Minister.  Discussions with the parties involved will be held between the present time and 2 July 2008.

The Chairperson asked what the timeframe was for the report to be submitted to the Committee.

Mr Masilela indicated that a period of two weeks was sufficient time to allow the Minister to consider the report but the time frame depended on the complexity of the issue.  He gave the undertaking to communicate with the Committee, should there be a delay in forwarding the report to the Committee.

Dr Motlanthe (ANC) asked why Bowman Gilfillan was appointed to investigate the matter in addition to an internal investigation by the HRC.

Dr Pheko agreed with the remarks made by Dr Schoemann and said that the Committee cannot accept a report unless the process was concluded.  He requested clarity on the date the Committee could expect to receive the report.

The Chairperson replied that the Committee would receive the report two weeks after it was received by the Minister.

Mr Sayedali-Shah looked forward to receiving the report.  He said that Dr Molefe had mentioned the complaints made about victimisation and the balanced scorecard.  He said that this issue dated back to 2005/06 and 2006/07.  He asked why the complaint was not investigated and addressed by the Board at that time.  Ms Borotho took paid leave only ten months ago.  He asked if witnesses were afraid to come forward when the investigation was first conducted.  He wanted to know when the first and second enquiries were held and when the reports on the enquiries were issued.  He asked if Mr Kaapu’s final report was the report endorsed by the Board.

Dr Molefe replied that he had no knowledge of earlier complaints made by Ms Borotho.  He said that the problems dating back to 2005 only arose when the main complaint was investigated.

Dr Molefe suggested the Committee submitted written questions on matters requiring exact details in reply.  He confirmed that the final report was issued by the HRC and included the reports issued by both the HRC and Mr Kaapu.  Subsequent to Mr Kaapu’s first report, an investigation needed to be conducted with MTN and Vodacom to establish whether a telephone conversation took place between Ms Borotho and a General Manager of Armscor.  It was established that the conversation took place but it could not be confirmed what was discussed.  He undertook to include the dates applicable to the events in the report submitted by the Board.

Dr Molefe said that the issue of whether Armscor was properly managed will be dealt with by the Board.  He agreed that the dual investigations by the HRC and Bowman Gilfillan created problems for the Board.  It was established that a report issued by the HRC was leaked to the media.  He said that both parties were entitled to use elements of the reports under the Access to Information Act.  He did not expect the Secretary for Defence and the Minister to spend too much time on deliberating the Board’s report on the matter.

The Chairperson requested that the names of the members of the two Armscor Boards were included in the report.  He asked who had granted Ms Borotho extended paid leave of absence and whether the leave was granted in terms of any clause.

Mr Groenewald asked what the cost was of the external investigation.

The Chairperson suggested that all the costs involved were included in the report.  The number of paid leave days can be accurately determined and a detailed breakdown of the costs incurred by the external law firm can be obtained.  He said it was in the public interest to know exactly how much the matter had cost.

Mr Sayedali-Shah requested clarity on the positioning of the HRC.  He was not clear on the various reports mentioned.  He requested that all the reports from the HRC and Mr Kaapu were made available to the Committee.

Dr Molefe agreed to include the names of the Board members in the report.  He explained that the HRC was a sub-committee of the Board, responsible for all human resource matters, including senior management performance and human resource policies.  The HRC reported to the Board.  The involvement of the external consultant was part of the human resource process.  One official report will be compiled by the Board for submission to the Secretary for Defence, the Minister and the Portfolio Committee.  He agreed to provide the Committee with any additional documents that may be required.

Dr Molefe replied that the Board authorised the leave taken by Ms Borotho, on the recommendation of the HRC.  He mentioned that the CEO had felt that if would be a wasteful expenditure but the Board took cognisance of the sensitivities and the nature of the complaint in reaching its decision.  A specific rule was not applied and the Board used its wisdom in taking a decision that was humane to the complainant.

The Chairperson outlined the time frames for the report from the Board.  He understood that the pertinent reports will be attached as appendices to the Board’s report.  He said that the Committee needed to have sight of the reports issued by the HRC and the external consultant and to be informed of the costs involved.

Mr N Fihla (ANC) said that it was unfortunate that there was a change in the Armscor Board before the matter was finalised.  Delays were caused and affected the costs involved.  He suggested that pressure was put on the Board to finalise the matter without further delay.

The Chairperson requested that the matter of the suspension of the procurement unit was investigated.  This issue was also mentioned in media reports but the Committee was not informed of how he matter was dealt with.

Dr Molefe thanked the Committee for the dynamic and constructive manner in which the meeting was conducted.  He suggested that possible dates for future meetings were advised well in advance to allow for Armscor representatives to schedule their attendance.  He repeated his earlier request for written requests where detailed replies were required.

The Chairperson conceded the importance of keeping open lines of communication.

Mr Sayedali-Shah said that the Committee provided an agenda but Members were free to ask any questions without providing prior notice.

The meeting was adjourned.