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09 December 2010

Telkom Board's audit committee takes decisive action

Telkom is aware that a series of memoranda containing a wide range of unsubstantiated statements relating to the alleged lack of corporate governance in Telkom are being circulated to the media and various parties.

The Board believes that the release of the memoranda is designed to distract them from its ongoing investigations. Some of the allegations in the documents which have been brought into the public domain have tarnished the reputation of Telkom.

A number of the matters contained in the memoranda are already known to Telkom and are in various stages of investigation. Following a meeting of the Audit and Risk Committee (ARC) of Telkom's Board of Directors yesterday, Telkom has decided to state its position on these matters publicly. The Telkom board and in particular the ARC has already taken decisive action on the findings of several investigations into matters at Telkom and its Nigerian subsidiary, Multi-Links over the last year.

Amongst other actions, the decisions of the Telkom Board's ARC have led to official criminal investigations and internal disciplinary processes.

Forensic auditors at Ernst & Young were tasked by the Telkom Board to perform an investigation into many aspects of Multi-Links, and this culminated in criminal and disciplinary processes being launched.

The findings of the Ernst & Young investigations have been handed to the South African Police Services and the National Prosecuting Authority for consideration. The SAPS and NPA have subsequently instituted criminal investigations into certain activities at Multi-Links.

Telkom is not in a position to provide further details of the criminal investigations.

An internal disciplinary process has also been instituted against various Telkom employees for failing to comply with company policies and for mismanagement. All disciplinary processes are a confidential matter between Telkom and the affected employees, and Telkom cannot disclose further details.

In addition to the Ernst & Young investigation, at the end of 2009 the Telkom Board recommended that a task team be convened to gain better insight into the challenges confronting Multi-Links. Following engagement between the task team and management at Telkom, led by Jeffrey Hedberg, the Telkom Board mandated Ernst & Young to review specific contracts concluded at Multi-Links which presented several commercial challenges.

The above review is currently underway and has not been finalised.

In a third formal enquiry initiated by Telkom, the Board appointed an independent forensic consultant to investigate the veracity of allegations made by former Chief of Operations, Motlatsi Nzeku in 2008.

In December 2008, Nzeku presented the Board with a dossier outlining allegations of breaches in governance and inappropriate conduct of management.

While most of the allegations were found to be unsubstantiated, the Board is taking appropriate action in some instances on the basis of the findings of the forensic report. Back to Top

A fourth probe followed allegations levied against the Telkom Group Chairman, Jeff Molobela, by former Chief Executive Officer Reuben September. The Telkom Board mandated KPMG to investigate September's claim of interference by the Chairman in operational matters at Telkom.

The KPMG report found that there was no evidence to substantiate all five allegations against the Chairman. Following the findings of the report, the Board has resolved to act against the individuals involved.

The Board and management of Telkom will continue to ensure the application of strong corporate governance principles including adherence to the King III Code of Corporate Conduct.

In addition to discussing the progress and outcomes of the four professionally-led investigations, the Audit and Risk Committee also considered recent statements made against Telkom's management in several documents being circulated to the media.

Some of these documents contain statements claiming unfair labour practices and racial discrimination at Telkom. The Audit and Risk Committee resolved to review those aspects of the statements contained in the documents that are not already covered by the current investigation.

Simultaneously, the executive management team will also investigate the statements contained in the documents and will take appropriate action on their findings, as required.

The Chairman of the Audit and Risk Committee, Sibusiso Luthuli, said that, apart from the issues already examined by Ernst & Young and other investigations, many of the statements in the recent dossiers were frivolous personal attacks on certain senior Telkom executives.

"However, the Board takes all allegations seriously and will investigate where appropriate,"said Luthuli. "The documents that have been placed in the public domain recently are deliberately malicious and are intended to undermine and damage Telkom's reputation. They were not presented through the established mechanisms for whistle-blowing before being circulated to the media and other stakeholders," said Mr Luthuli.

Telkom's Acting Group CEO, Jeffrey Hedberg, said that Telkom remained committed to upholding and applying sound corporate governance principles stringently at all times.
"While it is important for the leadership of Telkom to engage with the issues of the past, and to resolve them in a manner that sets the tone for the future, it is critical that we do not allow ourselves to be distracted from our core task of servicing our customers,"said Hedberg.

"I encourage a culture of open dialogue, in which employees can raise issues and express opinions transparently without fear or favour, and we have effective externally managed mechanisms for whistle-blowing and employee engagement," said Hedberg.

"We need to build a culture in which employees engage these processes, instead of reacting to unsubstantiated memoranda that make their way into the public arena."

The Board's ARC cautioned that the memoranda being circulated to the media and other third parties are littered with several inaccuracies. For example, a recent newspaper report quoted a document erroneously stating that Ernst & Young had allegedly failed to disclose that it found that Multi-Links should have already impaired R65 billion, and not only the amounts that Telkom had publicly declared.

In fact, the "R65 billion" referred to in the report actually pertains to an amount of N65 billion (N=Naira, the Nigerian currency), which represents the impairment of the full net asset value in Multi-Links at March 2010. This amount equates to the R3 billion impairment reported at the Telkom Group level at March 2010.

The report further erroneously indicates that Telkom had disclosed a R1.7 billion impairment at the end of the 2009 fiscal year, suggesting that there was no impairment in the first half.

In fact, the impairment at the end of the 2009 fiscal year amounted to R462 million. The R1.7 billion referred to in the report was in fact the impairment as at September 2009.

The Telkom Board is comfortable that the Telkom Group financial statements in respect of 2009 and 2010 are accurately and fairly presented in the financial reporting for these periods. Back to Top

For further enquiries, please contact:

Pynee Chetty

Senior Specialist: Media Relations

Group Communication

Tel:+27 12 642 1716

Mobile: +27 81 389 7874

Email: chettpr2@telkom.co.za

OR

Leigh-Ann Francis

Specialist: Media Relations

Group Communication

Tel: +27 12 642 1728

Mobile: +27 81 391 4780

Email: francilm@telkom.co.za

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ABOUT TELKOM:

Telkom is a leading communications services provider in South Africa. We had consolidated operating revenue of R16.8 billion and normalised profit after tax of R1, 683 million for the period ended 30 September 2015. Total assets amounted to R41.9 billion and equity attributable to the owners of Telkom to R23.5 billion as of 30 September 2015. The group generated normalised free cash flow of R1.4 billion for the period ended 30 September 2015.

As of 30 September 2015, we had approximately 3.3 million telephone access lines in service and 1,030,441 ports connected via MSAN access. We offer business, residential and payphone customers a wide range of services and products, including:

  • fixed-line retail voice services using PSTN (Public Switched Telephone Network) lines, including ISDN (Integrated Services Digital Network) lines, and the sale of subscription based value-added voice services and calling plans;
  • fixed-line customer premises equipment rental and sales services both voice and data needs and these include PABX, Computers, Routers, Modems, Telephone handsets and other ancillary equipment;
  • interconnection services, including terminating and transiting traffic from South African mobile operators, as well as from international operators and transiting traffic from mobile to international destinations;
  • fixed-line data services, including domestic and international data transmission services, such as point-to-point leased lines, ADSL (Asymmetrical Digital Subscriber Line) services, packet-based services, managed data networking services and internet access and related information technology services;
  • Data Centre Operations includes e-commerce, application service provider, hosting, data storage, e-mail and security services;
  • W-CDMA (Wideband Code Division Multiple Access), a 3G next generation network, including fixed voice services, data services and nomadic voice services;
  • mobile communication services, including voice services, data services and handset sales through our mobile navbar-brand called Telkom Mobile;
  •  information and communication services including cloud services, infrastructure services, workspace services, global service integration management and hardware and network equipment sales locally, in seven African countries, the UK and Dubai through Business Connexion Group; and
  • other services including directory services, through Trudon (Pty) Ltd, wireless data services, through Swiftnet (Pty) Ltd.

Convergence is one of our key strategic initiatives in building a sustainable future for Telkom.  We will lead the provision of converged services in South Africa in support of our mission statement: Seamlessly connecting people to a better life.