The Steinhoff Saga
The Steinhoff saga, possibly the biggest case of corporate fraud in South African business history, has dominated financial and general news since the company’s share price collapsed on 5 December 2017.
The Steinhoff saga, possibly the biggest case of corporate fraud in South African business history, has dominated financial and general news since the company’s share price collapsed on 5 December 2017.
At its peak, Steinhoff was part of the JSE Top 40 index, the JSE Top 25 Industrial index and the JSE Socially Responsible Investment (SRI) index. In 2015, the company added to its financial credentials by securing a listing on the Frankfurt Stock Exchange (FSE).
However, the empire came tumbling down on 5 December 2017 when the Steinhoff CEO, Markus Jooste, announced that he would step down from his position “with immediate effect” and the Steinhoff board announced that the company had become aware of “accounting irregularities requiring further investigation”. In the days following the announcement, the company’s share price fell by 85%.
Corporate governance … conveys the inherent dilemma faced by any director, i.e. the need to drive the enterprise forward while keeping it under prudent control.
This report, titled Business perspectives on the Steinhoff saga, has been compiled by faculty members from the University of Stellenbosch Business School (USB). The report tracks the growth of Steinhoff from its humble beginnings in Germany to its transformation into a global holding company. It also analyses the downfall of the organisation, asking probing questions such as:
- Was there a problem with compliance?
- Was there a problem with the composition of the board?
- Was there a problem with the structure of the board?
- Was there a problem with transparency?
- Was the board simply hoodwinked by a corrupt CEO?
- Can the company’s operational integrity and reputation be salvaged
Corporate governance has been defined as the system whereby business organisations are directed and controlled. This definition conveys the inherent dilemma faced by any director, i.e. the need to drive the enterprise forward while keeping it under prudent control. The tension between performance (driving forward) and conformance (prudent control) provides a useful framework for analysing the corporate governance system of any organisation. At the same time, the degree to which the fundamental governance principles of accountability, honesty and transparency inform board processes is extremely important. It is generally accepted that “independence of thought” and “care, skill and diligence” are among the key capabilities that directors need to bring to the boardroom.
The tension between performance and conformance provides a useful framework for analysing the corporate governance system of any organisation.
Steinhoff appeared to comply with all legal and listing requirements in its various jurisdictions. This created a (false) sense of security for both investors and other stakeholders. Whether there was indeed full compliance will become clearer as the investigations into alleged accounting irregularities start to yield results. Yet it does point to the risks associated with ‘tick-box’ compliance systems that are not underpinned by an ethical commitment to respect and abide by relevant rules and regulations.
USB sees it as part of its role to reflect on real-life business cases and to extract general lessons to be learnt. Much can be gleaned from business success stories, but even more revealing sometimes are business failures.
The overall aim of this mini case study is not to further discredit Steinhoff or any specific individuals, but rather to distil business lessons that might alert people to new Steinhoffs in the making. As a business school, USB understands and values the contribution that entrepreneurs and private corporations make to society. This is why USB’s education and guidance are aimed at helping to breed a new generation of responsible business leaders.
… “independence of thought” and “care, skill and diligence” are among the key capabilities that directors need to bring to the boardroom.
The authors of this report are:
Piet Naudé (Editor), Director of USB
Brett Hamilton, USB visiting lecturer in Corporate Finance and USB MBA alumnus. He is also a director of First River Capital.
Marius Ungerer, Professor of Strategy at the University of Stellenbosch Business School.
Daniel Malan, Associate Professor of Corporate Governance and Head of the Centre for Corporate Governance in Africa, based at USB
Mias de Klerk, Professor of Leadership and Human Capital Development, and Head of Research at USB.
Click here for the full report: Business perspectives on the Steinhoff saga
