/ 5 October 2012

Carolus blames departure on ‘comedy of errors’

Cheryl Carolus.
Cheryl Carolus.

But it was too late to prevent chairperson Cheryl Carolus and seven other board members from dramatically announcing their resignations the day before, saying their decision was a matter of reputation and the result of a breakdown in relations with the airline's shareholder, the government.

As directors, the board members were responsible for making sure that the financial statements were submitted on time – within six months of the end of the financial year, as required by the Companies Act. The deadline was Sunday September 30.

"We had to resign on Thursday to give time on Friday for the resignations to be implemented," Carolus said. "We would have preferred to resign elegantly, but we had to protect our reputations. Not presenting the financial statements was a reckless threat to our legal standing."  

The problem arose for Carolus and the board members as a result of the parastatal's auditors not signing off the financial statements for the year that ended March 2012 as unqualified without the letter of guarantee. The guarantee was stuck in "the system" and the government had postponed the annual general meeting a number of times, saying that the financial statements were not ready.

Turf wars
"It was a comedy of errors," Carolus said, "caused by turf wars and bureaucrats who still work with paperclips and drawing pins and complete forms on bits of paper in triplicate."

The tipping point came when Parliament was advised that SAA wanted to postpone the annual general meeting once again because the financial statements were not ready, which Carolus said was untrue.

"The only outstanding item for the financial statements was the letter from the treasury, which had been sitting in the system for four months," she said. "We, as a board, were made to look as if we were inefficient, while aspersions were also being cast about the financial statements for SA Express and SA Airlink, insinuating that there may be some cooking of the books."  

Carolus said she resigned to protect her board and her management.  However, she did not think the blame lay with Public Enterprises Minister Malusi Gigaba, who she complimented as a man of integrity with a good work ethic, but rather with the system that, she said, had let him down. "Heads should roll," she said, although in systems and bureaucracies the culprits are often difficult to uncover.

"I find it extraordinary that some people can destroy lives and reputations through callousness and bureaucracy. The stressful situations it causes means a lot of skilled people avoid working for parastatals."  

Lack of support
Fellow board member and former JSE chief executive Russell Loubser, who also resigned, supported Carolus, saying the problem boiled down "to a lack of moral and financial support from the shareholder. I have been totally frustrated and disillusioned. The airline has hard-working, honest management and staff and an outstanding chairperson. I have never seen this type of behaviour from a shareholder in all my life in business. I believe the government should either support the airline or close it down. A shareholder cannot just remain silent and do nothing."

An "elegant" departure by Carolus and a few of her board members had already been planned and communicated to Gigaba at a dinner a few weeks before, when he was told that certain board members would not be standing for re-election and a discussion was held about how to announce this at the annual general meeting scheduled for early September. "Everyone seemed happy and we would have left elegantly if it was not for a matter of government bureaucracy," Carolus said.  

Carolus confirmed that this was not the first time government bureaucracy had caused problems for the airline.

"Despite being a parastatal, we operate in a very competitive market and need to move fast with some of our business decisions. But we have all the additional government compliance requirements put in place by people, who do not understand how businesses work, hampering our progress. We have had to put up with some slow decision-making on the part of our shareholder with regard to some major strategic changes, such as new routes, where competitors have moved faster and gained the upper hand."

Since the resignations, the long-awaited and much-postponed SAA  annual general meeting has now been set for October 15. "It took half the board to resign to get the date to be set," Carolus said. "It's just a pity that what would have been a very upbeat AGM has gone pear-shaped."

Carolus, who has been chairperson since 2009, said she and her board had worked with the management team, led by chief executive Siza Mzimela, to devise a medium-to-long-term strategy for the airline for it to compete globally and become profitable, something which it had never done before. "We found it rewarding to work with the minister, who saw the benefits of our Africa and emerging market strategy and signed off our business plan."

Poor reputation
But while trying to place SAA on a new path, Carolus has had to contend with the airline's poor reputation gained by past failures, numerous government bailouts and accusations of corruption and misuse of funds by previous management. She said it was a pity that the expected R1-billion profit for this year was scuppered by the sudden rise in the oil price to more than $120 a barrel, causing an additional fuel cost of R2.2-billion. "If it wasn't for fuel increases, we would have made a profit this year," she said.

Carolus might also find it difficult to fend off criticism that the airline has received a R5-billion guarantee from the government, allowing it to borrow in capital markets. Because the international strategy for SAA had shifted from long-haul flights mostly to Europe to flights to African destinations that take half the time, it needed a new, different kind of fleet and therefore more funds, Carolus said.

"We need a competitive advantage and have to shift with global trends, which see trade and business moving to Asia and South America. That also ties in with our tourism strategy of attracting new visitors from the East and the West and from the rest of Africa. SAA needs an injection of cash to strengthen its balance sheet and allow it to approach the markets to raise capital. We won't be able to fund a new fleet on our own."

The new board members, announced almost immediately after the resignation of Carolus and her seven colleagues, will have to decide whether they are able to follow through on the strategy and give their support to management, which is already working on implementing it. The problem now is that the "fresh blood and different skills", as Carolus described the new board members, might decide to do something completely different.

Perhaps the lesson to be learned from the drama of the past two weeks is that the government needs to change its ways by moving away from its bureaucratic tendencies to a more streamlined era of technology- and business-based decision-making. But, in all probability, it will not and the slow machine of bureaucracy will continue to undermine public and private enterprises.