SABC 2010 Annual Report & Mid-Year Performance Report; Turnaround Strategy, Head of News and Current Affairs Appointment, Functionality of the Board

Meeting report

Opening Statement
The Chairperson informed the Committee that there had been correspondence from the Speaker who said that a letter had been sent from the Presidency in respect of the resignations from the SABC Board. The Presidency had received letters of resignation from Ms Felleng Sekha, Mr David Niddrie, Mr Magatho Mello and Ms Barbara Masekela. The President has accepted, with immediate effect, the resignations of those non-executive board members of the SABC. There were now four vacancies for non-executive board members within the SABC. The letter served to inform the National Assembly to initiate a process that would lead to the filling of the four vacancies.

The Chairperson stated that it was the Committee's task to find a way to fill the four vacancies.

Ms J Killian (COPE) asked if the acceptance of the resignations was with immediate effect or if the resignations of the board members were accepted with immediate effect. Her understanding was that the resignations were only going to be accepted over a three month period that would allow the Board to function. Without the four board members, the Board would not be able to meet quorum.

The Chairperson clarified that the letter said that the President had accepted the resignations with immediate effect. As of the date of the letter, those non-executive members should be seen as resigned. The Committee would discuss the matter of the vacancies another time.

SABC Annual Report Briefing
Mr Robin Nicholson, Chief Financial Officer (SABC), told Members that the SABC audience share for television had decreased from 67% in 2008/09 to 66% in 2009/10. The audience share for radio also decreased from 66.3% in 2008/09 to 65.3% in 2009/10. SABC 1 received the highest amount of news audience share with 35.1% of the market. They were followed by SABC 2 (20.1%) and SABC3 (10.42%).

In terms of the SABC’s employment equity performance, the SABC was 11.43% short of their target for having women in management positions. However, the entity was 9.8% above their target for having black management, and 0.37% above their target for employing disabled persons.

According to the financial statements, the SABC incurred a loss for the financial year of R486 million. The revenue shortfall was the main reason that the SABC failed to make the government guarantee targets. The overspending of operational expenditure arose from programme and sports write-offs and the increase in the provision for bad debts. However, operating expenses were R451 million lower than in the 2008/09 financial year. Interest income was lower than forecast due to the lower plan funding requirements. The financial statements showed that the Gross Profit Margin was 5% below the planned outcome due to lower sales. While the operating margin improved, it still remained negative at -8.6%. The movement from short term and trade finance to the long term loan improved the short term cash operating ratios significantly. However, debtors and investments in inventory and rights continued to weigh heavily on activity ratios such as asset turnover, creditor payment days and debt collection days. In terms of revenue, if the SABC did not receive the R200 million Estimates of National Expenditure (ENE) grant, the entity's revenue would have been negative. Advertising revenue was 4% lower than the previous year. This grant boosted the performance of the SABC. The SABC had to focus on the return to market share of revenue made from content and scheduling that drove audience share and conversion of audience share into revenue.

Regarding advertising revenue, long term trends indicated that the nominal rate charges for airtime increased while discounts increased at a greater rate resulting in the effective devaluation of the value of SABC airtime. These discounts and poor administration have also resulted in many client disputes as was evidenced by the increase in debtors’ days. The budget rates were set in accordance with trade policy but this policy was not adhered to resulting in a large variance in pricing.

The SABC’s overall expenditure was R34 million worse than its budget; however, it was R451 million lower than the 2008/09 financial year. The financial reports also showed that operating expenses were lower than the last two financial years. The core drivers of expenditure remained programme and broadcast cost and employee compensation and benefits. In terms of broadcasting costs, the local production costs for programmes continued to increase and rose by 75.9% in the year. Cuts were made to research and development expenses in line with general austerity measures put in place at the SABC. Permanent staff costs rose by 1.6% ahead of the budget and costs for independent staff and contractors fell by R40 million as a consequence of better management of activities and the reduction of freelancers. Capital expenditures were reduced to critical funded projects in line with the technology plan and the FIFA Soccer World Cup undertakings. A further detailed review of capital expenditure was underway.
 
Discussion
Ms Killian wanted clarity on what the “Sports 5 Penalty” expenditure was. She asked what the original penalty was before negotiations were under-taken to reduce the penalty.

Mr Nicholson replied that the SABC’s obligation at the time was R420 million. The transaction that was done said they could require the rights to the Africa Cup of Nations events, but if they did not want to go forward with the contract the rights were worth, approximately, R27 million more. The reduction in the amount of money the SABC owed amounted to approximately R400 million. In order to get out of the contract, the SABC had to pay just over R27 million.

Ms N Michael (DA) asked for clarity on what discounted air-time for advertising was. Whom was the discounted air-time offered to and on what basis?

Mr Nicholson addressed the question by using the example of having R100 worth of air-time. A large advertiser buying a large amount of air-time would be given a discount. So instead of paying R100, they would pay R75. The SABC could give the advertiser value-added airtime where a number of “spots” were not calculated in Rand terms but as an incentive for large advertisers to spend money. These spots were generally outside of prime time and were not normally sold. The SABC used these empty slots to encourage advertisers to spend more money. There were many concerns during the fiscal here as to how this was being control. It was currently the subject of a Special Investigative Unit (SIU) investigation that was happening right now. The SABC has also taken disciplinary actions against employees who have gone well outside the entities policies for selling air-time. The larger advertisers were usually the ones that received discounts. There were approximately twenty large advertisers that received discounted air-time.

Mr J de Lange (ANC) said that the way the financial statements were presented made the information seem like a lot of “gobbley gook”. He suggested that Mr Nicholson try to see the Members as his friends and to explain, honestly, what the financial statements said. At the beginning of the presentation, the SABC told the Committee they had a deficit of R206 million. The figure seemed to change as the presentation went along. If the SABC wanted the Committee to understand them and to engage with them, then they had to explain the financial statements properly. At the beginning of the year, the SABC told the Committee that they were struggling and were likely to close down. Now they were saying that everything was fine. He asked what the difference was how this change occurred. The SABC had to explain how they managed to over-spend by R200 million on benefits for staff while trying to meet government guarantees. He wondered if it was possible for the Committee to receive information on the salaries of each senior manager and each middle-management employee from 2007. The matter of salary packages was a huge problem in the past. Even now, it was the biggest cost at R1.7 billion. The SABC paid more for salaries than they did on content. They had to present the salary packages to the Committee in a way that was transparent and open. The SABC said they found it difficult to get the money owed to them by advertising agencies. Who was having difficulty paying and why did the SABC not cut off these advertising agencies services?

Mr Nicholson apologised that the financial statements were so confusing. He explained that the first problem that the financial statements showed was that the SABC had made a loss. This negatively impacted on the entity's cash flow. However, the loss was R485 million less than last years loss. The SABC did not achieve all of the cost saving that they wanted to. The SABC tried to prioritise content on air, which was why some of the content costs were increased. The entity struggled with employee costs as many of the employees were on air talent for radio, television, news production and sport shows. The SABC looked at reducing personnel costs but there was a problem with the way that they paid people. The SABC made its employees a promise that when they retired they would also receive other benefits such as a post-retirement medical benefit. They had been trying to address this problem for many years; however, a large number of court cases had been lost. The SABC realised they were more likely to spend a larger amount of money on paying legal fees and decided to settle the court cases. These settlements negatively affected the income statement by R180 million. The money would be paid out over the next 15-20 years as people retire. If people joined the SABC now, they would not be able to get this benefit.

Mr Nicholson informed the Committee that page 111 Annual Report showed the remuneration for all the SABC’s senior executives. The SABC made full disclosure of their staff benefits and remuneration. He knew there were specific goals set in the government's guarantees for the reduction in the cost of employment. The SABC had to analyse the way in which they paid employees. The defined benefit was also a big issue for the SABC.

The SABC had a clean audit report. The issue in the audit report was about the entity's liquidity. In the past the SABC’s solvency was fine but its liquidity was terrible, and they could not meet their month to month obligations to suppliers. The billion Rand that was received from Nedbank was used to address the SABC’s liquidity crisis. The SABC would start paying back this money in 2012.

Mr Nicholson told the Committee that the SABC had replaced basically their whole management team in the air-time sales unit over the past six months. They found that there were many difficulties with the billing system and credit control billing system within the SABC. On the sales system, where the adverts were put on air, the management and staff were simply overriding the credit control requirements. The SABC was aware of the breakdown in the system and there were plans in place to correct the situation.

Mr Nicholson assured the Committee that the SABC was in a liquid position currently. The finances had improved considerably over the past six months and the goal was to focus on the SABC’s cash flow.

Mr S Kholwane (ANC) noted that he had never heard the SABC report on any of its subsidiaries and wondered why the entity was considered a “Group”. He hoped the turnaround strategy would address the problem of the SABC’s decrease in market share. This was worrying.

The Chairperson replied that the matter of the SABC’s subsidiaries was going to be an important topic that the Committee wanted to discuss in depth. The Committee would defer the topic for now as he wanted Members to focus on financial matters first. He added that he had been listening to the SABC for many years and had not once heard about the entity's subsidiary companies. The Committee wanted full disclosure about these subsidiaries, who their directors were, the nature of their activities and functions and whether they were dormant. Were these funds from the subsidiaries used for laundering monies for individuals? What was the SABC keeping these companies for if they were not fully functional and operational?

Mr Nicholson replied that the SABC was considered a group because the Broadcasting Act said it was. When the SABC started corporatising, they looked at their funding model and saw that if all their associated businesses were classified as subsidiaries they would end up with cash being “locked in”. Instead of creating a subsidiary with Pty(Ltd) entities, the SABC decided to create one economic entity. This was why the Committee did not see much about the entity's subsidiaries even though they had subsidiaries. There were three types of subsidiaries. The first type consisted of dormant companies. This was disclosed in the Annual Report. The second type consisted of active, domestic subsidiaries. The third type of subsidiaries consisted of offshore companies.

Mr Kholwane addressed the payment of SABC staff. This linked in with the issue of the SABC’s retention scheme. He asked if the Committee could be given the classification or categories that would receive this scheme. This was linked to the entity's scarce skills and other related matters.

Mr Nicholson answered that, currently, the SABC’s staff had a contractual right to retention payments. As the retentions run out, they are jot being renewed. This was the approach being taken to deal with the retention scheme. There was a policy that covered the matter. It would be made available to the Committee.

The Chairperson replied that the Committee did not want the policy; they wanted a full list of the beneficiaries, and why the SABC wanted to retain those particular skills.

Mr Nicholson said they would make the information available to the Committee.

Mr Cedric Gina, SABC Board Member, added that the retention scheme was being discussed. The board members discovered the retention scheme did not just consist of retention bonuses. The scheme consisted of a complicated set of “facts” that were present all the time. The board members decided that the turnaround sub-committee would present a number of views about the scheme at their next meeting. It would help members decide on how to approach the matter.

Ms F Muthambi (ANC) referred to page 113 of the Annual Report. It was reported by the independent auditor that the Board did not do much to prevent the occurrence of irregular expenditure. Page 113 looked at cases of losses incurred through criminal conduct and irregular expenditure. She noted that cases 2-10 showed that no action was required. She asked the SABC to clarify what this meant. She also wanted to know what kinds of offences were committed and what corrective action was taken.

Ms Michael added that the Annual Report showed that R187 million was declared as irregular expenditure. She asked for an explanation.

Mr Nicholson explained that it was a case of debt collection agencies that were contracted without a review of the procurement processes. Case 2 and 3 were production contracts that were signed after the events occurred. The SABC’s internal audit committee recommended that no disciplinary action should be taken. There were details of the cases in the audit reports that were given to the internal audit committee.

The Chairperson wondered if there was a systemic problem with the SABC’s internal audit committee. There was a whole number of cases within the financial year where no action was required. It seemed as if this attitude created a culture where people could do things wrong and it would be over-looked because the SABC’s policies were not clear enough.

Mr Desmond Golding, Chair of the Internal Audit Committee: SABC Board, added that the internal audit capacity of the SABC had its challenges but this was being addressed by strengthening the entity's capacity. Issues that were brought before the audit committee, if they were being investigated, were given to the relevant managers to implement the decision once the case has been dealt with. The Board needed to look at what happened once a recommendation is made by the internal audit committee. The internal audit committee did not necessarily take disciplinary action; it referred its reports to the relevant managers. He assured the Committee that the internal audit committee functioned properly and met regularly.

Mr Kholwane suggested that the SABC send the Committee details for each of the cases so Members could see if there were any patterns. The Committee also wanted more information on the SABC’s subsidiaries to see how they were performing.

Ms Michael stated that the SABC had a history of not being able to differentiate between the government and the ruling party. The government was one of the SABC’s biggest advertisers. She was worried that the ruling party would be given a great deal of discounted air-time and free advertising slots. This was not a financial issue, but it went to the very heart of democracy. She feared it would leave other political parties in a very difficult position in that they would not have the financial capabilities to purchase large pieces of advertising slots. She asked how the SABC foresaw handling this problem.

The Chairperson interrupted saying the Members should not work with hypothetical matters; they were dealing with the SABC’s Annual Report for the last financial year. If any political party had received discounted air-time for advertising then the SABC should send the Committee a report. But, he did not want talk about what might happen in the next election. He asked Members to confine their questions to the Annual Report.

Mr Nicholson answered that the SABC disclosed all of its related party transactions in its financial statements. He referred Members to page 111 and 112 of the Annual Report.

The Chairperson asked the SABC to send the Committee a full comprehensive report on this information.

Ms M Magazi (ANC) noted that before the Interim Board handed over to the new SABC Board, there were reports of financial mismanagement. She asked why the Executive Authority and the National Treasury (NT) had not been informed of the matter.

Ms R Morutoa (ANC) asked if the unforeseen expenditure that caused the SABC to fail to meet the objectives set out by the NT were being addressed.

Mr Nicholson answered that some of the matters had already been addressed.

Ms Muthambi stated that the audit report had raised a lot of issues. The Committee was particularly concerned with the non-compliance with Public Finance Management Act (PFMA). It was the Board's duty to address irregular, fruitless and wasteful expenditure. There were instances of premature procurement where people entered into projects and order material in advance. What was being done to prevent procurement misconduct? She asked if the audit committee was satisfied that they were performing their functions to the best of their ability.

Mr Gina answered that an investigation was being conducted by the SIU. They would be investigating the SABC as far back as 2005. The SIU would also be using external specialists in their investigation. Inviting the SIU to investigate the SABC was one of the best decisions that the entity has made.

Mr N van den Berg (DA) asked what the SABC’s track record was for airing advertisements on time. He understood that the SABC had to compensate companies if the agreement with the client was not met. He asked how much money the entity had lost for compensating those clients.

Mr Nicholson replied that he was not sure how much money the SABC had paid out to Parliament over the past financial year. Usually, the SABC refunded its clients by different means in order to keep the sale. However, sometimes cash refunds had to be given. This was usually at 1.5 times the price of the original sale. He would try to get more detailed information for the Committee.

Mr de Lange said that when the SABC came before the Committee previously, they told Members that there had been a huge meltdown of its finances and that they had huge problems, particularly because of a decrease in advertising revenue and mismanagement of the entity's finances. He understood that the SABC then received government guarantees and R1 billion from Nedbank. Despite this, according to the SABC’s finances, they still had a deficit of R486 million. He asked if there had been a change to the entity's liquidity. He addressed the issue of defined benefits that were over-spent by R200 million. There was a court case pending and he assumed the SABC was opposing that they should pay all the benefits. The SABC was then informed by its legal team that the court cases would amount to too much and it was better to settle the matter. The matter was then settled on the basis that the employees had certain rights. R180 million would be paid out to these people. He did not know who the SABC’s lawyers were but it seemed that they were charging the company astronomical amounts in fees. He could not accept that the SABC accepted that they would suffer a R180 million liability every year. He asked for clarity on the matter. He referred the Committee to pages 111 and 112 of the Annual Report. He stated that the salaries for senior management scared him because they were so high. He wanted to know from the Board, since 2007, who said there should be increases. Why did the senior management of the SABC receive a bonus in the previous year? He also wanted to know what interest the SABC was paying on the R1 billion given to them by Nedbank.

Mr Nicholson replied that the once off settlement fee would amount to R180 million. It was not the cost that would be incurred every year. The SABC had already lost two court cases over a period of four years. After a review of the cases, the SABC was advised to settle the cases.

The SABC would provide a full report on the salaries.

Mr Nicholson answered that the amount of interest that was being paid on the R1 billion received from Nedbank was 8.7% per annum.

Ms Killian stated that if Members looked at the SABC’s turnaround strategies, they would see the importance of having a good relationship between the Board and the Executive Management. It seemed there was a situation in the SABC where the “tail was wagging the dog”. This spoke to a lack of accountability. Very serious allegations had been made against some board member who was abusing his/her position. The Annual report showed an expenditure of R180 000 for legal services. Was this in any way related to the Sport 5 negotiated settlement?

Mr Peter Harris, Board Member, replied that when the Board took over in January, one of the urgent issues that had to be dealt with was that the SABC was being sued. Litigation arose from a contract the SABC had signed in 2008 for the Africa Cup of Nations soccer rights. He was contacted by the Chairperson to advise the Board in a legal capacity and to advise on and oversee a series of legal complications. He was reluctant to do so but was finally persuaded. It was agreed that he would be separately reimbursed for his time as it was a complex matter and had huge consequences for the SABC. After numerous meetings, the Board arrived at a strategy with CEO, Solly Mokoetle, and the legal firm representing the SABC. He kept the Board informed of what was happening at all times. This culminated in him travelling to Paris with the CEO and the SABC’s lawyer. They reached a settlement with Sport 5 over a period of days. The settlement included Sport 5 withdrawing their legal action. The chairperson and the Board were delighted at the outcome. Thereafter, he continued to advise on the settlement agreement. He was paid R140 000 after tax and the invoice detailed the amount of work he had done on an hourly basis. The legal fee that was paid to him was audited by the external auditors who had no problem with it. He referred Members to page 111 of the Annual Report.

Mr Gina addressed the matter of the board member that was accused of abusing his/her position. He was concerned about how the Member knew about the matter, as not many people had been told. The matter had not even been reported in the media.

Mr Nicholson added that the person was a very senior member of the Board.

Ms Killian replied that having this information was part of her oversight duties. Also, the matter had been reported in the media approximately four or five times already.

SABC Mid-Year 2010/11 Financial Report
Mr Nicholson spoke about the second quarter financial results (1 July-30 September 2010). The SABC had anticipated that they would make a loss of R85.1 million, but made an actual loss of R78.9 million. However, they were R40.1 million under their target for revenue for the quarter. This was due to a decrease in radio advertising revenue, sponsorship revenue and government grants.

The SABC’s surplus for the first six months was R25 million. At the end of the second quarter there was a modest profit of R157.7 million. The balance sheet showed that the SABC’s cash and cash equivalents amounted to R70.1 million and cash in fixed deposits amounted to R322.5 million. This put the SABC in a good liquidity position and cash flow for the past six months has improved. R142.2 million was generated from the SABC’s operations.

Statistics of the Internal Control Breakdowns for 2009/2010 Audit
Mr Nicholson said that 155 management letter points were identified during the 2009/10 audit of the SABC. A number of these were recurring management letter points from previous years. 63% of the findings were classified by the Auditor-General as first time findings, while 37% were repeated findings. The AG found that there were 22 matters that affected the Annual Report that required urgent attention. He found 104 matters that had to be addressed over 12 months and 29 matters that had to be addressed at the SABC’s own discretion. 74% of the findings were categorised as internal control deficiencies and 23% dealt with compliance matters.

Afternoon session

South African Broadcasting Corporation (SABC) Annual Report
Performance review
The Chairperson noted that the Committee had received the financial report in the morning, but now wished to hear a report on the turnaround strategy, matters that were still outstanding from the last meeting with the Committee and any other current performance matter from April 2010 to date.

Mr Robin Nicholson, Chief Financial Officer, SABC, tabled a document that he said would deal with the implementation process of the turnaround strategy, which would run until 2014, to meet government guarantee conditions, contained in a document “Development of an Enterprise Strategy”. Some aspects had already commenced.

He noted, however, that the document had not been approved by the Board.

He also noted that some of the slides he would present were not in the handout given earlier to Members.

Mr Nicholson presented on about four of the slides, setting out some aspects of the ten-point turnaround plan, and noted that the SABC had looked at the definition of an enterprise strategy, in order to unpack the various implements and requirements, considering each of the operational units in turn.

Discussion
Ms M Magazi (ANC) interrupted at this point that she was confused as to what exactly was being presented, and whether the remarks made thus far related to performance of SABC in 2009/10, or an update on what had been presented at an earlier meeting. If the promises made at earlier meetings had not been implemented, then she wished to hear about this specifically. She reminded Members that this Committee had not been happy with the report from Sentech, and had sent Sentech away with the request that it produce a more specific report, and suggested that the same should be done for SABC.

Ms J Kilian (COPE) aligned herself with Ms Magazi’s remarks. She said it was difficult for Members to be expected to deal with slides that were not in the written copies. Each one of the workstreams briefly outlined required further scrutiny, to identify where steps had been taken, and whether the Committee was satisfied with them. She added that feedback on performance was critical, in order that the Committee could draft its Budgetary Review and Recommendation Report (BRRR) and all entities should be reporting on this, to avoid wasting time. If SABC could not present on that, then perhaps the Committee should consider whether it could deal with the matters not concluded on 24 August, which related to the turnaround, the filling of posts, and the functionality of the SABC. The Committee was bound to account. Eleven out of the twelve non executive Board members had presented a position at the last meeting, making some very strong statements about breach of statutory requirements, and she thought the Committee must make it quite clear whether it was still investigating those, condoning or ratifying the position. Finally, she said that she had gathered that some of those board members who had recently resigned may have been asked to, and agreed to, serve three months, but the letter from the Office of the President indicated that the resignations would take immediate effect. This needed to be clarified.

Ms S Tsebe (ANC) agreed that no turnaround strategy was shown in the document.

The Chairperson said that although the performance report from 1 April 2010 to date had not been circulated, there was a document entitled “Turnaround Strategy”, from which Mr Nicholson was reading. He would normally have suggested that Mr Nicholson should finish the presentation and then the Committee should comment on the merits of that document. However, he conceded that there was some difficulty, since this document was not presenting on what the Board had approved. He said that the SABC should give a report on appointment of Head of New and Current Affairs and a report on the state of functionality of the Board. He suggested that the Committee could perhaps allow the presentation, then say whether it had approved the quality of the presentation and work done.

Ms Tsebe disagreed. She did not believe that this document allowed the Committee to do oversight.

Ms R Morotua (ANC) said that it would not help the Committee to hear the presentation, because whatever would be presented had not been approved by the Board.

The Chairperson asked SABC if there was Performance Review Report.

Dr Ben Ngubane (ANC) said that no such report was ready to be presented to the Committee. He reiterated that many of the documents must still be approved by the Board, with several still being considered by committees. Although much had been done, an approved document could not be presented as yet. Comprehensive documents would be submitted once they were approved, before year-end.

Adv J de Lange (ANC) said that it would be impossible for the Committee to continue in a process where documents had not been finalised, otherwise each and every Board member would need to give a comment whether he or she agreed with the items presented. The Committee was aware of the difficulties with which SABC was faced, but he suggested that a time and date should be set by which SABC should bring something more comprehensive before the Committee. The items presented on thus far were historic, prior to 31 March 2010. He suggested that a date be set and that the Board must speed up its processes over the next few weeks, while the Committee would continue to try to get the board appointments finalised. It would incorrect for the Committee to proceed.

Ms N Michael (DA) said that she thought that the position was appalling and showed disrespect to the Chairperson and the Committee and its oversight function. She stressed that SABC was vital as the public broadcaster. The fact that no report could be presented indicated a lack of strategic planning, and it was possible that no progress review could be presented because there was no progress to report. The reports placed before the Committee earlier must be discussed, as she was worried that if more resignations could follow. She thought that the behaviour of the Board was not acceptable and this should be strongly expressed.

Mr S Kholwane (ANC) suggested that the Board should be given a chance to finalise its internal processes and present finalised documents to the Committee. He agreed that the Committee could only discuss issues on which sufficient information had been presented, and did not believe that it could discuss the issues around progress that were not supported by any documentation. Those matters requiring Board approval should be taken back for such approval to be obtained.

The Chairperson noted the comments of Members. He added that this invitation to the Board had been sent out in more than ample time, and he would not like to see entities being excused from presenting simply when they claimed that there were no approved documents. He stressed that the SABC Board had had ample opportunities to prepare for this meeting and there was no good reason why it could not have convened a meeting to finalise the documents that would be needed. It was an embarrassment to the Board that it should be sent back. He wanted the Board to make it quite clear why it had failed to present. It could not expect the Committee to be inconvenienced and wait for Board meetings to be scheduled and he wanted to register strong dissatisfaction. Because the slides on the enterprise strategy had not been approved, this document could not be considered.

Members agreed that the Board should explain its failure to approve the strategy.

Mr Kholwane pointed out that if no approved progress report had been tabled, then the Committee could not ask for reports on certain matters only.

Ms Kilian did not quite agree, and thought asked that the appointment of Head of News was a separate item, which had been outstanding since 24 August. She wondered if an approved strategy on this could be explained, and suggested that there seemed to be some differences between what was noted in the hard copy before Members and what was now on the screen.

The Chairperson noted that the document on screen was also not approved by the Board and must be disregarded.

Dr Ngubane assured the Chairperson and Committee that the Board had intended no disrespect and there was no unwillingness on the part of the Board to take its work seriously. Members of the Board saw their appointments as an honour and a chance to serve their country. The SABC was a source of information, education and entertainment and the free-to- air principle guaranteed democracy and access to information. He disagreed with the insinuation that the Board had been careless, reckless or disrespectful. The Board had encountered incredible difficulties, and there were some difficulties even on the position of Mr Nicholson, as the Group Chief Executive Officer had been suspended. The shareholder had asked the Board to consider a solution to the difficult issues, and the Board took this challenge seriously, and would be producing high quality work.

Mr Nkotomane Motsepe, Board member, SABC, added that the Committee’s letter to SABC set out, in bullet point 2, that the Committee had called for a performance report from 1 April, including the turnaround, report back on the appointment for Head of News and functionality, which implied that the Committee only expected a report on some issues, and had not mentioned, for instance, whether subcommittees of the Board were meeting. He thought that the instruction to SABC was not detailed enough.

Ms Magazi responded that even if the letter was regarded as vague, this still did not justify the SABC not even ensured that the documents that were set out were available for discussion. SABC knew that Parliament had to table a report on its performance, and although SABC had clearly been under enormous pressure, it was the responsibility of the Board to correct the situation. She urged that the Committee should no longer “nurse” any entity, and that any entity that was called upon to report must be thoroughly prepared, produce the necessary documents and engage constructively with the Committee.

Adv de Lange said it was no secret that SABC had been in trouble for many years, and the Committee wanted this to be rectified. He personally thought that the right balance had been achieved in the board appointments, and that the political problems that had in the past hindered the Board were no longer present. He agreed that the Board should bear the responsibilities of this Committee and Parliament in mind. The Committee was doing oversight precisely to get the Board and the institution properly functioning. He had no argument with the stated commitment of members of that Board, but felt that their actions did not always reflect that commitment. He was disappointed at some of the petty issues that were causing in-fighting. The Committee must be given support from the Board in order to engage with and solve the problems.  Cooperation was needed from the remaining Board members, who no doubt were still in position either because they genuinely wished to be, or because they had been convinced of the necessity to stay. He hoped that the Board would not take the comments of the Committee personally or in the wrong way, but hoped too that the Board fully understood the position of the Committee Members, who not only had to explain matters to their constituents, but also were trying to correct the situation. All must work together to this end. He suggested that the Committee should spell this out clearly and that clarity must be reached, through cooperative work, on what were the problems and what was needed to correct them. He therefore suggested that a new meeting date be set, and that the approved reports must be with the Committee before the end of the year.

Mr N van den Berg (DA) suggested that this was “reality human drama”, and expressed his sympathy and support for the dedicated personnel from the SABC who had struggled to do their jobs in less than ideal conditions.

Ms Kilian aligned herself with Mr de Lange’s remarks, and thanked those Board members who were present for staying on the Board during difficult circumstances. She fully recognised the difficulties inherent in changing the direction and culture of the SABC. The integrity of the public broadcaster must be maintained. Although not every individual on the Committee may have supported every Board member in his or her appointment, the Committee nonetheless had agreed that the whole Board was worthy of public confidence. It was acknowledged that there were historical problems, but ultimately this Board would be tested on compliance with its fiduciary and statutory obligations, and must explain how and where things went wrong, and why it considered that matters that were not procedurally correct should be condoned. She was worried about the comments on the status of some staff.

Mr Kholwane agreed that the Board was capable of dealing with the challenges. The Board should be an employer of choice. He commented, in regard to the reporting requirements, that the Company Secretary should surely have been updating the Board on the revised requirements of Parliament in terms of the Money Bills Amendment Procedure and Related Matters Act, to enable the Board to comply. SABC was a very important institution whose operation and independence must be jealously guarded.

The Chairperson noted that the parties wished to have some time for caucusing, and granted an adjournment.

When the meeting reconvened, Dr Ngubane said that the SABC was grateful for the frank discussions. SABC had presented on its annual financial results and Annual Report, and apologised for the fact that other aspects were not covered. The Board had presented a document in August to the Committee outlining dysfunctionality in some areas and had requested assistance from the Committee in investigating the issues, to get full insight into the difficulties and problems, and he reiterated his request for assistance in investigating these issues in depth, to isolate the causes and then find a solution. The full background to all matters would need to be set out.

The Chairperson noted that the Committee, after caucusing on the issue, had issued a statement. He stressed that the Committee would be calling the SABC Board back on 10 November to complete its reporting, and after those full reports had been tabled, the issues raised would be considered.

He then read out the statement from the Committee (see attached document).

In summary, the Committee noted that it had received a presentation on the 2009/10 Annual Report of the SABC and its financial position, but agreed not to receive the oral presentation on the performance of the Board because of the failure of SABC to submit relevant documents. The Committee believed that there was not much room for optimism about the affairs of the SABC.

It also noted the correspondence from the President accepting the resignations, with immediate effect, of four members of the Board.

The Committee recorded its view that the Board had failed to provide coherent leadership and to ensure proper corporate governance. The Board had failed to meet its statutory requirement of meeting on a quarterly basis, instead preferring to run a serious of ad hoc and special meetings, which the Committee regarded as unacceptable, and this should be corrected.

The Committee also noted its concern about the emphasis, in the audit report, on the non-compliance with the Public Finance Management Act (PFMA), National Treasury regulations, and the Broadcasting Act, particularly the breach of relevant procurement processes.

The Committee urged the Board members to remember that they held office in a crucially important public entity, which impacted on the lives of millions of citizens, and should therefore pay greater attention to their duties, responsibilities and the manner in which they carried out their duties. In light of the four resignations, the remaining Board members had even greater responsibility.

The Committee noted its concerns that the Annual Report lacked detail of the SABC’s subsidiaries, including whether they had been audited, and cautioned that the apparent breaches were against the norms and standards of good corporate governance and could lead to adverse audit findings and possibly criminal prosecution. The responsibility for statutory compliance rested on the Board.

The Committee also noted that the financial position of the Board seemed precarious and that the Board had not been able to adopt a comprehensive turnaround strategy.

The Committee therefore set out the following recommendations:

1) The Chairperson and the Board of SABC should approve a schedule of quarterly Board meetings between now and December 2011, and submit this to the Committee on 10 November 2010
2) A turnaround strategy for SABC must be tabled to the Committee on 10 November
3) The policy of retention bonuses for staff members must be reviewed
4) The Acting GCEO must provide a full and detailed report on the activities of all subsidiary companies associated with SABC, on 10 November
5) The Board must present a written report to the Committee, on 10 November 2010, on further progress in respect of the Auditor-General’s investigation into alleged irregularities at the SABC
6) The Board must also report to the Committee, on 10 November 2010, on staff, including senior and middle management, salary increases and benefits from 2007 to date
7) The Board must report, on 10 November 2010, to the Committee on the disciplinary cases, and reasons why no action was taken in respect of the cases highlighted in the 2009/10 Annual Report
8) The Board must, on 10 November 2010, table a performance review report for the current year, including a report on functionality of the Board.

The Committee also resolved that it would endeavour to process recommendations for filling the vacancies on the Board during the current session of Parliament.

Members agreed that this statement would be presented to the House for adoption.

Other business
The Chairperson tabled two draft Committee Reports for consideration, one relating to its meeting with the Department of Communications, for tabling on the ATS, and the second relating to its meeting with the Government Communication and Information System (GCIS), which would be noted.

Members proposed and seconded the Reports as correct.

The meeting was adjourned.