South African retailer Steinhoff reported on Thursday a 3 percent rise in sales to 4.7 billion euros ($5.4 billion) for the three months ended Dec. 31.



The firm, trying to clean up its finances after uncovering an accounting fraud that nearly tipped it into bankruptcy, also said a forensic investigation into the problems at the firm by accountants PwC would be delivered to the board in mid-March.



READ MORE | <a rel="noreferrer noopener" aria-label="Did Steinhoff’s board structure contribute to the scandal? (opens in a new tab)" href="https://www.forbesafrica.com/focus/2018/01/29/steinhoffs-board-structure-contribute-scandal/" target="_blank">Did Steinhoff’s board structure contribute to the scandal?</a>



<a href="https://www.forbesafrica.com/current-affairs/2017/12/18/steinhoff-scandal-points-major-gaps-stopping-unethical-corporate-behaviour/" target="_blank" rel="noreferrer noopener" aria-label="Steinhoff scandal points to major gaps in stopping unethical corporate behaviour (opens in a new tab)">Steinhoff scandal points to major gaps in stopping unethical corporate behaviour</a>

Steinhoff’s Quarterly Sales Rise 3 Percent

Magda Wierzycka, one of South Africa’s richest women, had her lowest moment standing in an airport parking lot, unemployed, looking at the long walk to the cheapest rental car. Things had dramatically changed since she was one of the top three most senior employees in the company she worked for. She had quit, angry at an ethical breach and felt like she had to start her career from scratch.
Little did she know, she was months away from a solid position and eventually, the start of her own company, which would rocket her to the multi-millionaire’s club. However, in that drab parking lot, knowing her husband was unemployed as well, knowing she had bills to pay, children to feed, and trying to start her own business, it all felt overwhelming.
“I felt like I was in a constant state of panic attack,” says Wierzycka, “It was such an incredibly stressful time.”
Today, she is the Chief Executive Officer of Sygnia Group, an asset management company. She went from that day in the parking lot to one of South Africa&#8217;s richest women in a few years. It&#8217;s a tale of countering adversity to rise to the top.
South Africa has had a slew of businessmen tumbling from grace in the past year, some from oversight and others from severe ethical impropriety. For many C-suite executives, a public downfall is difficult to correct, and few can crawl out from the rubble and continue their careers.
However, “You’d be astounded how many billionaires were bankrupt in their past,” points out James van der Westhuizen, a South Africa-based industrial psychologist and the managing member at KnowHouse. “If you can learn from your failure, that’s a good sign of future success.”
Some of the businessmen included in that list are the truly resilient, like Steve Jobs, CEO of Apple (once fired from the company he created).
Resilience is the difference between those who succumb to and those who bounce back.
“Some people would have taken a deep breath and planned the next step after landing themselves in a situation like mine, but I just threw myself into activities,” says Wierzycka.
“My philosophy is that you must never stop fishing. You only need to catch the occasional whale, but you have to keep fishing to do that.”
<a href="http://www.forbesafrica.com/focus/2018/02/21/lose-2-1-billion-one-day/" target="_blank" rel="noopener">READ MORE: How To Lose $2.1 Billion In One Day</a>
<h2>How to be resilient</h2>
How you handle failure says a lot about your internal resources: resilience. The New Yorker defines resilience as the answer to this question: when the worst hits, “Do you succumb or do you surmount?”
James van der Westhuizen, a South Africa-based industrial psychologist and the managing member at KnowHouse, says that he covers three factors in his executive coaching that apply to resilience. They are:
<ol>
<li>Mind body system: “Humans are an energy run system, and you need to replenish your internal resources by looking after your body,” says Van der Westhuizen, “I’m often astonished at the neglect I see in executives.” Look after your body and take time out to care for your mind too.</li>
<li>Social network: “Humans are social creatures,” says Van der Westhuizen. Make sure you have a social network you can draw on. A supportive home base and secure relationships make a huge impact at a time like this. “I couldn’t have done any of it without my husband,” says Wierzycka, “He was the voice of reason.”</li>
<li>Habits of thinking. This is a big one, and it can trip you up unnoticed. It’s easy to fall into negative thinking patterns that make you feel helpless. It’s important to keep perspective, avoid globalising one event to everything and to take one day at a time.</li>
</ol>

When the mighty fall

It was one of the best performing companies in Africa and investors loved it. No other retailer has been able to do what Steinhoff did. In just three years, Steinhoff grew from a humble South African furniture retailer, with some European assets, into a global giant. It has more than 12,000 stores in 30 countries over five continents, employing 130,000.
It was the fruit of an acquisition spree that began with the purchase of pan-African Pepkor Holdings for $5.7 billion. Then came Poundland in the UK for $925 million, Fantastic Holdings in Australia at $275 million and Mattress Firm in the US at $2.4 billion. Steinhoff earned itself a spot on the top 50 global shares to watch in 2017 by Bloomberg Intelligence.
By the end of 2017, it all turned into a nightmare.
In 2017, Steinhoff International reported a 13% rise in half-year operating profit and a 48% jump in revenue as recent acquisitions sustained sales in 2017. Not even an investigation could derail the Steinhoff train.
“Excluding the recent strategic acquisitions, the company’s retail business achieved total organic revenue of 7.2 billion euros amidst volatile markets and currencies, translating to 9% organic growth,” Steinhoff said in a statement in June.
A mere five months later, it all came crashing down and the share price told the tale.
On Tuesday December 5, Steinhoff’s share price opened at R45.65 on the JSE and by Friday December 8, it had fallen to a R7.77; down about 80% in just three days.
<a href="http://www.forbesafrica.com/billionaires/2017/12/08/south-african-billionaires-fortune-plunges-2-billion-day-amid-accounting-scandal/" target="_blank" rel="noopener">READ MORE: South African Billionaire&#8217;s Fortune Plunges More Than $2 Billion In A Day Amid Accounting Scandal</a>
The match that lit the fuse was the abrupt resignation of its multi-millionaire CEO Markus Jooste, on December 5; followed by its auditor, Deloitte, that refused to sign off financial statements, and the head of Steinhoff Africa Retail (Star), Ben la Grange, also calling it quits.
The fraud allegations, that began about two years before, had come back to haunt them.
The fuel for the fire was a report by Viceroy Research, a US-based investment company that has forensic accountants who probe into suspicious financial results. According to Viceroy Research, Steinhoff made some of its money through off-balance-sheet entities inflating earnings and obscuring losses.
The biggest red flag was its acquisition of poor and struggling companies whose performance appeared to quickly improve after acquisition.
Among them, according to Viceroy, are Campion Capital, controlled by Jooste’s associate George Alan Evans; Southern View Finance UK, controlled by billionaire and FORBES AFRICA cover Christo Wiese; and Genesis Investment Holdings, controlled by former Steinhoff CEO/CFO Siegmar Schmidt.
“Steinhoff has issued expensive loans to and booked interest revenue against Campion subsidiaries for the purchase of loss-making Steinhoff subsidiaries. These revenues will never translate to cash… Steinhoff has also moved two loss-making and predatory consumer loan providers to off-balance-sheet entities: JD Consumer Finance and Capfin,” says Viceroy.
“Given these loss-making entities, such as Southern View Finance UK, are being round tripped (a form of barter that involves a company selling an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price) back to Steinhoff, Viceroy believes it is possible that Steinhoff are ‘repaying’ Campion’s outlays through acquisition premiums (i.e. losses are being capitalized through round-trip transactions with related parties).”
<a href="http://www.forbesafrica.com/focus/2018/01/29/steinhoffs-board-structure-contribute-scandal/" target="_blank" rel="noopener">READ MORE: Did Steinhoff&#8217;s board structure contribute to the scandal?</a>
Byron Lotter, Portfolio Manager at Vestact Asset Management, agrees.
“They were creating off-balance-sheet entities and putting underperforming assets into those entities. For example, it seems like when they bought JD Group, they managed to find a buyer for the R10 billion debt book that came along with JD Group. It seems like that buyer was one of these off-balance-sheet entities that Steinhoff itself owned,” he says.
<div id="attachment_35349" style="width: 505px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-35349" class=" wp-image-35349" src="https://www.forbesafrica.com/wp-content/uploads/2018/02/Markus-Jooste-e1519198511415-300x199.jpg" alt="Markus Jooste Steinhoff" width="495" height="328" />Markus Jooste (Photo by Gallo Images/ Sunday Times/Raymond Preston)</div>
There are also allegations of tax manipulation cash flow trends that do not correspond to EBITDA, investigations into senior executives for tax-evasion, document forgery and fraud, and rampant and dilutive equity raising. It caused the Steinhoff stock to tank.
One of the allegations is from the 2016 annual report, where Jooste writes that the tax rate will remain around 15% and, according to Zwelakhe Mnguni, a Chief Investment Officer at Benguela Global Fund Managers, if you are a company that operates in a 28% jurisdiction, it’s impossible to maintain a 15% tax rate on an annual basis.
“You are not investing in capital expenditure which would have allowed you to get tax deductions which lowers your tax, so how do you get 15%? The net asset value of the business was also in the negative… there are a lot of things we don’t know and somebody somewhere knows the hole is bigger,” says Mnguni.
Steinhoff’s complex balance sheet blinded many investors with inflated earnings. There were many signs over the years but people missed them. Some analysts asked why Steinhoff’s accounts lacked important information about where it was generating revenue and why it appeared to focus on tax breaks rather than the actual business.
<a href="http://www.forbesafrica.com/focus/2017/12/18/steinhoff-scandal-points-major-gaps-stopping-unethical-corporate-behaviour/" target="_blank" rel="noopener">READ MORE: Steinhoff scandal points to major gaps in stopping unethical behaviour</a>
Very few people saw this coming. David Shapiro, Deputy Chairman at Sasfin Securities, is one of them.
“What we were seeing with former CEO Markus Jooste was that he will go for one company, miss it, and the next day he goes for another and that’s how he ended up with Mattress Firm, Poundland and other smaller businesses in Europe and an acquisition in Australia,” he says.
Shapiro says he stayed away from Steinhoff because he could never get to grips with what the company was doing.
“It was a moving giant making it never stable enough to make a comparison. I told myself I’m holding back from investing until I understand what the business is. I also found out that they were very opportunistic. They would do a deal then form a structure against it. The strategy kept changing.”
Retail analyst Syd Vianello concurs.
He says Steinhoff’s European operating companies have operating margins that appear to be realistic but the income they are declaring from the internal and external supply chain look “a bit on the high side”.
“I don’t know to what extent they could have been manipulated. The income on the properties also appear to be a little on the high side but there are properties which are rented out to third parties, therefore there is a level of income from the properties,” says Vianello.
“The figures I think are questionable are the interest income that they get from these loans they have been making appear manipulated. The American operations like Mattress Firm, I don’t think are making money at all.”
Vianello says Steinhoff will need more money to service debt. Steinhoff has debt worth about $13 billion on its balance sheet.
“My personal opinion is that the banks are going to demand that they sell Mattress Firm. My gut feel is that the management there will try to do a management buyout (a transaction where a company&#8217;s management team purchases the assets and operations of the business they manage) backed by some venture capitalists,” he says.
It would possibly mean Steinhoff wouldn’t get money they put into Mattress Firm back – a devastating loss.
Steinhoff is already scouring for liquidity to keep itself alive. It has sold its 2006 Gulfstream G550 private jet and has also sold a stake in South African investment holding company PSG Group, raising about $345 million.
The big question is how did Deloitte, an auditing firm that has been in operation since 1845, sign off on Steinhoff’s 2016 results?
According to Lotter, one of the reasons may be that Jooste was a powerful bully who many were afraid of.
“He was very smart and managed to convince a lot of people that what he was doing was within the law,” he says.
<a href="http://www.forbesafrica.com/focus/2017/12/13/anger-corporate-slippery-slope/" target="_blank" rel="noopener">READ MORE: Anger At The Corporate Slippery Slope</a>
Jooste and Wiese are part of South Africa’s so-called Stellenbosch Mafia – a group of billionaires who own winelands and control markets.
The Independent Regulatory Board for Auditors (IRBA) says, for this, it is investigating Deloitte South Africa.
Deloitte has refused to comment on the matter stating confidentiality obligations and the ongoing investigations as a reason.
The JSE, Africa’s biggest stock exchange, headquartered in Sandton, also appears to have missed the accounting irregularities at Steinhoff.
Even after the cat was out of the bag, the JSE did not suspend Steinhoff’s trade. It says it would be unfair to investors for them to do so as the Frankfurt Stock Exchange has not suspended trading in Steinhoff International shares and would place investors trading on the JSE at a disadvantage to those who are able to trade the Steinhoff International share in Frankfurt.
“We believe that under the circumstances where Steinhoff International has disclosed as much price sensitive information as it is able to, it would be detrimental to the interest of investors to prevent them from trading Steinhoff International shares on the JSE,” says the exchange.
It, however, was detrimental to many investors and hit many more people in the street.
The Public Investment Corporation (PIC) – which manages pensions of government employees – is one of the biggest investors in Steinhoff. It has already lost billions in retirement savings. At the time of going to press, the PIC’s 8.56% stake was just R3.6 billion ($290 million) compared to R20 billion ($1.6 billion) a week before scandal broke.
&nbsp;
“The specific mandate of the FSB in this area, according to the FMA (Financial Markets Act) is to investigate cases of insider trading, price manipulation, and false reporting. This engagement with the JSE will determine what case, if any, the FSB ought to look into,” says Tembisa Marele, Communications Specialist at the FSB.
<div id="attachment_28742" style="width: 510px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-28742" class=" wp-image-28742" src="https://www.forbesafrica.com/wp-content/uploads/2017/05/Christo-Wiese_JC-7-e1517483872132-300x199.jpg" alt="" width="500" height="332" srcset="https://cms.forbesafrica.com/wp-content/uploads/2017/05/Christo-Wiese_JC-7-e1517483872132-300x199.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Christo-Wiese_JC-7-e1517483872132-600x397.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Christo-Wiese_JC-7-e1517483872132-768x509.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2017/05/Christo-Wiese_JC-7-e1517483872132.jpg 1024w" sizes="(max-width: 500px) 100vw, 500px" />Christoff Wiese (Photo by Jay Caboz)</div>
The billionaire who lost the most is Wiese. Between the night of December 5 and the afternoon on December 6, he had lost $2.1 billion. His total net worth has dropped from $5.5 billion, one the FORBES&#8217; 2017 African billionaires list, to $1.1 billion on this year’s.
“This is the most dramatic that I can remember. There was a guy in Brazil who was worth $30 billion and then eventually had a negative net worth but it took a longer time for that to happen. This is the fastest drop I have ever seen in the two decades I have been looking at billionaires at FORBES,” says FORBES Assistant Managing Editor, Kerry Dolan.
Lotter says its doubtful Wiese knew what was happening.
“I’m of the opinion that Wiese didn’t know. Who in their right mind would go and build what he built with Pepkor and Shoprite and then go and put it all in a company where the CEO was cooking the books. He is a smart guy and he wouldn’t purposefully do that,” says Lotter.
Everyone is waiting to see what Wiese and Jooste are going to do next. Whoever dared invest in a share?

How To Lose $2.1 Billion In One Day

The global retail group Steinhoff is reeling under allegations of accounting fraud. Since the allegations surfaced last year the CEO of the multi-billion-dollar business, Markus Jooste, has <a href="https://www.iol.co.za/business-report/steinhoff-shares-nosedive-after-ceo-markus-jooste-resigns-12286137" target="_blank" rel="noopener">fallen on his sword</a> and the company’s stock has been <a href="https://www.sowetanlive.co.za/business/2017-12-07-steinhoff-share-price-continues-to-fall/" target="_blank" rel="noopener">hammered</a>, at one point losing about 90% in market value in a few days.
Observers are calling for harsh punishment, including jail, for the culprits.
<a href="http://www.forbesafrica.com/focus/2017/12/18/steinhoff-scandal-points-major-gaps-stopping-unethical-corporate-behaviour/" target="_blank" rel="noopener">READ MORE: Steinhoff scandal points to major gaps in stopping unethical behaviour</a>
Early reports suggest that Steinhoff was involved in massive <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-14-steinhoff-accounting-woes-go-back-to-2016-as-scandal-grows/" target="_blank" rel="noopener">accounting fraud</a>, including the overstatement of the company’s financial position.
The company is listed on both the Johannesburg Stock Exchange in South Africa as well as the Frankfurt Stock Exchange in Germany. With a primary listing in Frankfurt and an <a href="http://www.steinhoffinternational.com/corporate-information.php" target="_blank" rel="noopener">Amsterdam</a> corporate address, Steinhoff follows the Dutch corporate governance code.
Consistent with this code, Steinhoff has a <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&amp;context=fisch_2016" target="_blank" rel="noopener">two-tier board structure</a>. This <a href="http://www.steinhoffinternational.com/leadership.php" target="_blank" rel="noopener">is made up of</a> a management board (comprised of four top executives) and a supervisory board (comprised of 9 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.
The two-tier board structure is favoured in western Europe. The US and UK prefer the <a href="http://www.steinhoffinternational.com/leadership.php" target="_blank" rel="noopener">one-tier</a> – or unitary board – structure, as does South Africa for historical reasons.
It appears that Steinhoff’s decision to opt for the two-tier board structure may have contributed to its undoing. Natural holes in the structure, the biggest one being the fact that the management board doesn’t always keep the supervisory board in the loop, combined with Steinhoff’s corporate culture which was anchored by a <a href="https://www.moneyweb.co.za/in-depth/investigations/we-have-always-been-wary-of-markus-jooste-36one-founder-cy-jacobs/" target="_blank" rel="noopener">dominant personality</a>, appear to have created accountability holes.
<h2>Two-tier versus one-tier structure</h2>
There are pros and cons to both systems.
One of the good things about the one-tier board system is that executive directors and non-executives directors sit together on a single board. Traditionally there would be two or three executive directors (the CEO, chief financial officer and the chief operating officer) sitting alongside a majority of non-executive directors.
This means that there’s a seamless flow of information between executives and non-executives. The executives can be asked questions with the entire board present. This closes any information asymmetry. In addition, it can also facilitate quicker decisions.
On the downside, the unitary board structure has been criticised for its propensity to compromise the independence of the non-executive directors. This dilutes their oversight role.
For its part the two-tier system seems to have more checks and balances built into it given that the management board is subject to oversight by the supervisory board, and the supervisory board has to answer to shareholders.
But the two-tier structure is often <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&amp;context=fisch_2016" target="_blank" rel="noopener">criticised</a> for information asymmetry between the management board and the supervisory board. In other words management knows a great deal more about the business than the supervisory board. This can lead to operational challenges developing without the board noticing until it’s too late.
Steinhoff’s board structure followed the two-tier system. In 2016 its management board comprised three members, Jooste (CEO), <a href="http://www.huffingtonpost.co.za/2018/01/05/steinhoff-cfo-ben-la-grange-steps-down_a_23324706/" target="_blank" rel="noopener">Ben La Grange</a> (Chief Financial Officer) and <a href="https://www.fin24.com/Companies/Retail/steinhoff-shares-rally-as-beleaguered-retailer-names-acting-ceo-20171219" target="_blank" rel="noopener">Danie van der Merwe</a> (Chief Operating Officer and now acting CEO). As is normal under the two-tier system, none of the three members of the management board sat on the supervisory board.
Some analysis of the <a href="https://www.theguardian.com/business/2016/jun/22/volkswagen-handling-emissions-scandal-shambles-investors-agm-german-carmaker" target="_blank" rel="noopener">Volkswagen emissions scandal</a> apportioned blame to the two-tier system combined with a <a href="https://www.nytimes.com/2015/09/25/business/international/problems-at-volkswagen-start-in-the-boardroom.html" target="_blank" rel="noopener">corporate culture</a> that was anchored by dominant personalities.
A similar case can be made for the Steinhoff saga.
<a href="http://www.forbesafrica.com/billionaires/2017/12/08/south-african-billionaires-fortune-plunges-2-billion-day-amid-accounting-scandal/" target="_blank" rel="noopener">READ MORE: South African Billionaire&#8217;s Fortune Plunges More Than $2 Billion In A Day Amid Accounting Scandal</a>
<h2>Flaws in the Steinhoff structure</h2>
Did the two-tier structure give the CEO too much leeway to take decisions that in the end led to the near collapse of the company?
This may indeed have been the case. Take, for example, the fact that some believe the company <a href="https://www.iol.co.za/business-report/opinion/opinion-steinhoff-shock-the-warning-signs-were-all-there-12314186" target="_blank" rel="noopener">grew too quickly</a>.
The danger of companies expanding too rapidly was highlighted decades ago by <a href="https://books.google.co.za/books/about/Corporate_planning.html?id=FRMPAQAAMAAJ&amp;redir_esc=y" target="_blank" rel="noopener">author and corporate strategy guru </a> John Argenti who came up with <a href="https://accountingandplanning.files.wordpress.com/2014/12/qualitative-models-of-corporate-failure.pdf" target="_blank" rel="noopener">a model</a> that considered factors leading to corporate failure. Two of the higher scored factors were expanding too fast (referred to as overtrading) and high levels of loan borrowing.
Steinhoff seems to have suffered from both. And yet the supervisory board appears to have failed to raise the red flag when it comes to large transactions. An example of it failing to fulfil its oversight role was when it decided to not make public Steinhoff’s <a href="https://www.reuters.com/article/us-steinhoffintlaccounting-disclosure/steinhoff-didnt-tell-investors-about-nearly-1-billion-in-deals-idUSKBN1D81BZ" target="_blank" rel="noopener">$1 billion</a> transaction with a related company. Even if the supervisory board didn’t legally have to make this public knowledge, ethically it should have made the disclosure.
The functioning of the audit and risk committee didn’t help the situation either.
<h2>Audit and risk committee</h2>
Steinhoff had three standing committees of the supervisory board – audit and risk, human resources and remuneration and the nominations committee. The committee structure had two weaknesses.
The first was that too few of its non-executives actually served on the committees – only 5 of the 11 supervisory board members. And given that the then chairman Christo Wiese and Claas Daun only sat on one, it begs the question how only three members of the supervisory board could have been expected to carry the real responsibility of the standing committees.
The second flaw was that audit and risk were wrapped up in one committee. This is the norm under a two-tier governance structure.
South Africa’s corporate governance structures might have helped to address both these problems.
<a href="http://www.iodsa.co.za/?page=KingIV" target="_blank" rel="noopener">King IV </a> stipulates that the risk governance committee should be made up of a mixture of non-executives and executives (the majority being non-executives). And the governance guidelines warn against audit and risk being under one committee. Its advice is that a company should only combine them if it’s able to devote enough time to dealing with risk related issues.
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.
<h2>Conclusion</h2>
The Steinhoff case highlights weaknesses in the governance structure the company had chosen to operate under. That said, the rules have worked perfectly well for thousands of other companies. The lesson therefore is be alert to the warning signs such as dominant directors who don’t heed the rules. They can pose a grave risk to any company. &#8211; Written by <a href="https://theconversation.com/profiles/owen-skae-315237" target="_blank" rel="noopener">Owen Skae</a>, Associate Professor and Director of Rhodes Business School, <a href="http://theconversation.com/institutions/rhodes-university-1843" target="_blank" rel="noopener">Rhodes University</a>
This article was originally published on <a href="http://theconversation.com" target="_blank" rel="noopener">The Conversation</a>.
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Did Steinhoff’s board structure contribute to the scandal?

What do you read from these allegations of corporate corruption?
The Steinhoff scandal is disturbing because it points to a serious gap in the checks and balances in the investment management space. A scandal of this magnitude should not have occurred if the systems with their multiple layers were working.
It’s still early days but it seems as if a multiple of highly paid professional layers failed investors. This includes auditors, asset managers and non executive directors who in their different roles should ensure that the company’s accounts are as close to the truth as possible.
Steinhoff share price <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/" target="_blank" rel="noopener">collapsed</a> by more than 90%, wiping off nearly €10 billion in shareholder value in about three days following the resignation of the company’s CEO, Markus Jooste, after news that German prosecutors were investigating the company for alleged massive <a href="https://www.fin24.com/Companies/Retail/german-prosecutors-still-probing-steinhoff-for-possible-accounts-fraud-20171207" target="_blank" rel="noopener">accounting fraud</a>. Steinhoff is listed on both the Johannesburg Stock Exchange and Frankfurt Stock Exchange.
Steinhoff shares were the darling of most fund and asset managers in South Africa and across the globe. We must ask questions why these entities, which draw enormous fees, <a href="https://www.fin24.com/Opinion/magda-wierzycka-asks-hard-questions-about-steinhoff-and-asset-managers-20171207" target="_blank" rel="noopener">failed to pick up</a> the alleged irregularities when it seems like they should have done so if they were doing their jobs properly.
How big is the damage caused by this scandal?
It’s still early days but some people are already tagging this scandal as the <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/" target="_blank" rel="noopener">biggest corporate failure</a> in the history of the Johannesburg Stock Exchange. With more than 40 retailing brands in over 30 countries, Steinhoff was positioned as one of the largest companies by market capitalisation on the exchange. Its market value of close to R300 billion as recorded earlier this year placed it in the <a href="https://businesstech.co.za/news/business/164635/the-biggest-companies-in-south-africa-by-market-cap/" target="_blank" rel="noopener">top 10</a>, flanked by other South African corporate giants like media giant Naspers, luxury products specialist Richemont, resources giant Anglo American, petrochemicals firm Sasol as well as two big banks Standard Bank and FirstRand.
If Steinhoff’s stock doesn’t recover the capital losses of share investors who bought at inflated prices will be massive.
Steinhoff started off as a South African-based company but built itself into a global retail business with significant interests in western Europe. As a result it attracted <a href="https://www.moneyweb.co.za/news/economy/collateral-damage-who-owns-steinhoff/" target="_blank" rel="noopener">prominent</a> investors. In South Africa, these include the Public Investment Corporation which invests on behalf of the Government Employees Pension Fund among other public entities. The Public Investment Corporation is reported to hold <a href="https://www.moneyweb.co.za/in-depth/investigations/pic-reacts-to-steinhoff-implosion/" target="_blank" rel="noopener">10%</a> of Steinhoff’s total shares which means its losses reached more than R10 billion after the share price collapsed.
It is therefore of the utmost importance and in the interest of all involved – particularly direct and indirect investors – that the Steinhoff matter be brought to a swift closure. Swift closure should be followed by legal action against and punishment of all those implicated.
<a href="http://www.forbesafrica.com/billionaires/2017/12/08/south-african-billionaires-fortune-plunges-2-billion-day-amid-accounting-scandal/" target="_blank" rel="noopener">READ MORE: South African Billionaire&#8217;s Fortune Plunges More Than $2 Billion In A Day Amid Accounting Scandal</a>
How wide spread is such behaviour?
Each time a major scandal surfaces, regulatory gaps are identified and new measures are put in place to plug the apparent holes. But the scandals keep coming.
South Africa has had its fair share of corporate scandals with the most recent being a list of companies linked to the Gupta family inspired<a href="https://www.fin24.com/Opinion/the-gupta-master-plan-meticulously-executed-state-capture-20170830" target="_blank" rel="noopener"> state capture</a>. Big names like <a href="https://www.biznews.com/sa-investing/2017/12/06/naspers-links-gupta-corruption/" target="_blank" rel="noopener">Naspers</a>, KPMG, McKinsey and SAP have been caught in the extensive web of corruption allegedly driven by the Guptas who have close ties to the country’s president.
Some <a href="https://www.facebook.com/search/top/?q=tim%20cohen%20steinhoff" target="_blank" rel="noopener">commentators</a> have linked the Steinhoff saga to the broader ethical challenges facing South Africa. The integrity of some people in key positions of authority in both the public and private sectors is being questioned. This includes the country’s President Jacob Zuma who stands accused of <a href="https://www.news24.com/SouthAfrica/News/zuma-breached-oath-of-office-de-vos-20160405" target="_blank" rel="noopener">violating</a> the oath of office.
<a href="http://www.forbesafrica.com/focus/2017/12/13/anger-corporate-slippery-slope/" target="_blank" rel="noopener">READ MORE: Anger At The Corporate Slippery Slope</a>
What must be done?
Despite the best efforts, it’s impossible to regulate for integrity and ethical behaviour. The one effective way that behaviour can be changed is through legal process and by means of tough punishment.
At this point in time we are still unsure of the degree of corporate rot in Steinhoff. Numerous <a href="https://mg.co.za/article/2017-12-07-steinhoff-the-largest-corporate-failure-on-the-jse" target="_blank" rel="noopener">allegations</a> have been made, but the world now waits for the company’s delayed audit report to see the full extent of possible corporate fraud. Steinhoff must act swiftly in informing shareholders and other stakeholders about the true financial health of the company.
The board of directors of Steinhoff is responsible for the financial health and the financial reporting of the company. The problems at the company resulting in the serious decline in the share price, raise the question whether the board members should continue to hold office. Under the watch of the current board a massive destruction in shareholder value took place.
No board replacing the current one can do worse, as there is simply hardly any shareholder value left to destroy. Will the current board do the honourable thing and step aside?
If fraud is proven, I want to see Steinhoff executives serve jail terms. They have caused immeasurable harm to many people. This is the only way in which unethical and fraudulent behaviour can be out-rooted and integrity restored.
From a proper investigation of the affairs of Steinhoff, possible regulatory gaps should also be identified and eradicated. Nevertheless, no structure of regulation and supervision can replace the single most important requirement for successful business conduct: Ethical behaviour. In South Africa we need ethical behaviour at all levels, namely the government, businesses and civil society.
<img loading="lazy" decoding="async" src="https://counter.theconversation.com/content/88905/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" />This article was originally published on <a href="http://theconversation.com" target="_blank" rel="noopener">The Conversation</a>.

Steinhoff scandal points to major gaps in stopping unethical corporate behaviour

The acquisitive plans of South African retail king Christo Wiese took a hit Wednesday when Steinhoff, the retail conglomerate he chairs, said its chief executive Markus Jooste had resigned amid accounting irregularities. It’s a major reversal of fortune for Wiese, 76, and Steinhoff, which has recently expanded its business across Europe and America.
Steinhoff shares have fallen more than 60% in a day, erasing $2.3 billion from Wiese’s fortune. He&#8217;s now worth an estimated $1.49 billion, according to <a href="https://www.forbes.com/profile/christoffel-wiese/?list=rtb" target="_blank" rel="noopener">Forbes Real Time Rankings</a>. That&#8217;s down more than $4 billion from March 2017, when he was worth $5.6 billion.
Going forward, Steinhoff has tapped PwC to investigate the accounting irregularities, and with Steinhoff CEO Markus Jooste out, Wiese will temporarily become Steinhoff’s executive chairman.
Since 2016, furniture and home good retailer Steinhoff has done more than half a dozen deals, including the acquisition of US-based Mattress Firm. Steinhoff is a part of Wiese’s discount retail empire, <a href="http://www.forbesafrica.com/cover-story/2016/05/01/africas-sam-walton/" target="_blank" rel="noopener">which the South African has been building since the 1970s, as a 2016 profile of Wiese in Forbes magazine details</a>.
Wiese first joined the ranks of the Forbes Billionaires in 2011, with a net worth of $1.6 billion. His fortune rose as high as $6.3 billion in March 2015. In December 2015, Wiese moved Steinhoff&#8217;s listing from the Johannesburg Stock Exchange to the Frankfurt Stock Exchange to concentrate more on the European market.
The retail king made headlines in 2009  after U.K. customs officials detained him at London City Airport with two suitcases filled with nearly $1 million in cash. <a href="http://www.forbesafrica.com/focus/2013/03/01/the-king-of-retail/" target="_blank" rel="noopener">They seized it, suspecting illicit origins</a>. The British and South African press picked up on the incident &#8211; apparently suspecting Wiese had been nabbed for money laundering &#8211; and were further emboldened by Wiese&#8217;s stubbornness in fighting for the funds&#8217; return and his insistence that the amount was &#8220;insignificant.&#8221; (The Daily Mail&#8217;s gleeful headline: &#8220;It&#8217;s Just Peanuts to Me.&#8221;) The government ended up returning the money to Wiese &#8211; interest attached. Wiese wouldn&#8217;t talk publicly about it.
&#8211; Written by <a href="https://www.forbes.com/sites/abrambrown/" target="_blank" rel="noopener" data-ga-track="contrib block byline">Abram Brown</a>, FORBES STAFF

Tag: Steinhoff

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