Steinhoff: This is why things went so very, very wrong
'Biggest corporate fraud in SA history' the result of 'greed, arrogance and entitlement', explains expert
The Steinhoff fall was partly brought on by corporate greed, arrogance and entitlement, delegates at the Certified Fraud Examiner African Conference in Sandton heard on Tuesday.
Professor Daniel Malan from the Centre for Corporate Governance at the University of Stellenbosch said the board of directors running the retailer were described as “a club of friendship and trust”.
“There is nothing wrong with friendship and trust or clubs, but it is not the way you want to describe a board of directors of a multinational organisation.”
Malan was trying to explain what led to the Steinhoff collapse, which he said may be the “biggest corporate fraud in South African history”.
Steinhoff, which has more than 40 global brands, collapsed with the share price losing 95% of its value in 10 months and R200bn going up in smoke.
The issue was revealed in December when the company could not release its annual financial statements since auditors Deloitte had uncovered accounting irregularities.
CEO Markus Jooste, who grew the local company into a global behemoth, resigned in December and the share price began to plummet.
Malan said many business leaders had approached the Centre for Corporate Governance because they were worried it could happen again or to their own companies.
He said large institutional investors (pension funds, financial companies) missed the Steinhoff warning signs.
In hindsight there were a few warning signs, Malan said. These included:
• The board of directors managing the company were primarily Stellenbosch-based friends and almost all white males. “International experience tells us the board needs to be diverse,” he said. Irregularities are more likely to be picked up and the right questions asked if you have diversity of race and gender on the board;
• He said having one director for 19 years, as was the case with Steinhoff, was too long and undermined the independence of the person;
• He said Markus Jooste was a charismatic leader, which means he had “very good social relationships, charm and extraordinary people skills”. It can be hard for directors on the board to question such charismatic people, he said;
• The board of directors didn’t question the things they should have. One red flag was that Steinhoff paid between 10% and 12% corporate tax, when the business tax rate in SA is 28%. They needed to ask why the tax paid was so much lower, he said.
Jooste has denied wrongdoing, telling parliament in September he knew nothing of the irregularities and he had lost R3bn when the share price plummeted.
• Directors and investors confused expansion with profits. Malan said people assumed that because the company was expanding with annual global acquisitions, it was becoming richer. “Do not mix expansion with actual financial success.”
It is now known that new Steinhoff business deals were used to cover the losses of previous deals and confuse readers of the balance sheets.
• Malan said it is clear the company complied with legal corporate governance codes, but did so in a “mindless manner”. Steinhoff’s annual and corporate governance reports from 2012 and 2016 had the same paragraphs copied and pasted year after year. “They had boilerplate reports, each one the same as the rest. No real accountability happened.” Instead, “they showed tick-box compliance”.
“Proper governance is just not compliance with laws.”
• Malan said it was “likely” that major corruption was involved, but would reserve judgment on alleged corruption, saying authorities had to do the work to prove it.
Malan said the e-mail Jooste report wrote to partners the day he resigned, saying he had “made mistakes” and had to face them “like a man”, suggested corruption.
“These words are seen as admission of guilt by many.”
Malan said psychological factors driving the Steinhoff fall were corporate greed, arrogance and entitlement. Often people who build a company into a global brand feel it is theirs and they can do as they wish without regard for laws, he said.
While people who lost money wanted justice immediately, it was better to let the law take its course.
An audience member said some people were worried it would take 11 years for justice, as in the case of the Harmony Gold – the mining company this week paid a R30m fine for irregular financial statements issued in 2007.
But Malan urged patience because investigations took place in a number of countries.
The summit concludes on Wednesday.