Nicola Mawson

Several academics and law firms have weighed in on the spectacular collapse of Steinhoff, which resulted in multiple people being arrested for fraud and the company’s listing being removed from both the JSE and Frankfurt Stock Exchange.

Associate Professor and director of Rhodes Business School, Professor Owen Skae, has investigated whether Steinhoff’s board structure contribute to the scandal. His research made the point that, with its primary listing being in Frankfurt and its corporate address in Amsterdam, Steinhoff follows the Dutch corporate governance code.

Previous articles ran by Business Report have shown how Steinhoff only followed corporate governance rules in theory as, in practise, scant regard was paid to business oversight.

The corporate scandal, often called South Africa’s largest, led to then CEO Markus Jooste’s apparent suicide, former directors being arrested, and a massive loss in market value.

Deloitte flagged accounting irregularities in 2017. As a result, between August 2017 and March 2019, Steinhoff lost 97%, or $21 billion (R387bn at today’s rate) of its market capitalisation as investors reacted to the news.

Skae said that Steinhoff had a two-tier board structure, which was consistent with the Dutch code. This involved a management board (comprised of four top executives) and a supervisory board (comprised of nine non-executive directors).

“The point of the two-tier board structure is to ensure that the supervisory board is independent from the executives who sit on the management board. The management board accounts to the supervisory board, which accounts to the shareholders or to the company,” Skae explained.

Yet, said Skae, it appeared that this very construct contributed to Steinhoff’s undoing. He explained that there were “natural holes” in this structure, which means that the “management board doesn’t always keep the supervisory board in the loop”.

This aspect, the largest such hole, “combined with Steinhoff’s corporate culture which was anchored by a dominant personality, appears to have created accountability holes,” said Skae.

In addition, Skae said the fact that the two-tier structure gave the then CEO too much leeway to make decisions could have led to its collapse. He said the supervisory board seems to have failed to raise a red flag when large transactions, such as the $1 billion deal with a related company, happened.

Given that too few directors were involved in audit and risk, Steinhoff did not always have the necessary oversight, said Skae.

“For a company of Steinhoff’s complexity, it seems inconceivable that the audit and risk committee could have devoted the necessary time to undertake its responsibility,” he noted.

A University of Pennsylvania paper flagged the fact that Markus Jooste had held the role of CEO for nearly 20 years. For many, the paper said, he was seen as a “charismatic” leader and a “retail star” in additionally to being a rand billionaire at Steinhoff’s peak in 2016.

Steinhoff, said the university’s paper, was also not sufficiently transparent with its financial figures. “Steinhoff did not disclose like-for-like growth nor the contribution from acquisitions consistently over time,” it said.

“In addition to M&A, other management actions – including several capital raises, a secondary equity listing in Europe (2015), a shift in its fiscal year end from June to September (June 2016), and an attempted spin-off of its South African business in the weeks before its collapse (October 2017) – obfuscated performance,” the case study noted.

Dhahini Naidu, director at law firm Fairbridges Wertheim Becker has written that Steinhoff’s collapse “sets a precedent for how similar cases might be handled in the future, potentially altering the landscape of corporate governance and legal recourse in South Africa”.

BUSINESS REPORT