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Steinhoff scandal points to major gaps in stopping unethical corporate behaviour

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Steinhoff International Holdings

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 collapsed 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 accounting fraud. 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, failed to pick up 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 biggest corporate failure 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 top 10, 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 prominent 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 10% 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.

READ MORE: South African Billionaire’s Fortune Plunges More Than $2 Billion In A Day Amid Accounting Scandal

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 state capture. Big names like Naspers, 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 commentators 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 violating the oath of office.

READ MORE: Anger At The Corporate Slippery Slope

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 allegations 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.

The ConversationThis article was originally published on The Conversation.

Current Affairs

Why Zimbabwe Is Not There Yet

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Despite the ample investment opportunities in Zimbabwe, post-election setbacks challenge its economic recovery

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First African Elected Female Head of State Urges Women to Be Bold

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Ellen Johnson Sirleaf has an iconic status in Africa and the world. As the first elected female head of state in Africa, she served as the leader of Liberia for two elected terms.

Those terms saw Liberia’s slow and steady march from what was considered a pariah state to a country with what the Mo Ibrahim Foundation calls a “trajectory of progress” that has helped transform its economy, survive the shock of Ebola, and restructure public institutions to respond to the needs of the people.

READ MORE: The People’s President

It is only fitting that FORBES WOMAN AFRICA gets to meet the Nobel Peace Prize winner in Rwanda, a country known for its high representation of women in Parliament, and where Sirleaf is awarded the Ibrahim Prize for Achievement in African Leadership at a special ceremony.

Q. Please share your thoughts on the African Union (AU) self-funding reform goal, the Kaberuka Proposal.
The dependency of the AU on external sources has been the subject of debate for many years, and the thinking of our leaders is that it is better to finance our operations by ourselves and alleviate pressure and dictation from these external sources. On the other hand, we know that to have financial autonomy, every country must be able to contribute consistently. So, the crux of the reform is to change the payment formula and make sure everyone knows they have to pay their part.

When it comes to the Kaberuka suggestion, it meets our objective of financing our organization ourselves. However, it does place a burden on the poorer states… So, our position with the Kaberuka plan is to study it some more so when we commit, we do not fall into arrears. We want to see the reform implemented, and for it to include cost-reduction in structural aspects such as travel and positions etc., thus reducing the burden on poorer countries.

Q: Will Africa really be able to tackle illicit financial flows? And with women being conspicuously absent from financial decision-making, yet being the greatest losers on such issues, how do we tackle these discrepancies?
We have to become more accountable and pass stringent mandates in institutions, as well as instill practical capacity to understand the complexities of these financial transactions. Also, we must implement a legal system that will enforce against such flow violations.

Access for women is difficult even in the case of legitimate flows. Even with a growing manufacturing sector and agri-industrial activities usually manned by women, access is still limited, for rural women particularly.

There is a big effort being put in by different regional institutions; in Liberia’s case, GIABA, the Intergovernmental Action Group Against Money Laundering in West Africa, has been analyzing the flows and determining what is illicit.
But it is up to women to stand up and put other women in leadership roles, because the record is clear: women are more credit-worthy when it comes to financial transactions, and this suggests the more women there are heading these institutions, the more we can be assured that regulatory laws will be more effective.

READ MORE: ‘Women’s Leadership Is Under Attack Globally’

Q: What are your plans? How would you encourage young women to follow in your footsteps, or even create their own path?
We are establishing the Ellen Johnson Sirleaf Presidential Center for Women and Development. The activities will center around five themes that will promote women in business; women in leadership; women in fragile states; women in migration; and education for women and girls. We will use the life experiences of women who have excelled in these areas. For the young women, I say to all, be self-confident and pursue your goals…Let us be bold as women.

– Interviewed by Laura Rwiliriza

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Prosecution And Praise For Jacob Zuma

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It proved a day short on time in court and big on political posturing and speeches. The former president of South Africa Jacob Zuma’s appearance lasted a mere 10 minutes, on April 6, and the trial postponed until June 8 – yet he managed to make political capital out of his day in court in Durban.

On a bright sunny day in the coastal city of Durban in the KwaZulu-Natal (KZN) Province of South Africa, the former head of state stood trial in his own court. Almost 10 years ago, 10 days after this day, 18 charges on 783 counts of fraud, corruption, money laundering and racketeering were dropped against Jacob Zuma by former National Prosecuting Authority (NPA) boss Mokotedi Mpshe.

This decision was said to have been based on the recordings of the so-called ‘spy tapes’, which were presented to Mpshe by Zuma’s legal team. And almost a decade later, Zuma stands trial in the same court for the same charges which were reinstated by now NPA boss Shaun Abrahams.

The court was packed to full capacity with only 25 journalist allowed inside. Media came from all over the country, the continent and the world. Night vigils and pickets were held outside the night before the court case and on the day the case took place, led by different organizations supporting the former president. These organizations included Transform RSA, Black First Land First led by Andile Mngxitama, student groups from various KZN universities and members of the African National Congress (ANC) ruling party who claimed not to be operating under the party’s name.

The National Executive Committee (NEC) of the ANC made an announcement a week before the trial that members of the party who liked to support Msholozi, as Zuma is affectionately called, could do so in their own personal capacity and not wear any party regalia. However, ANC members who attended actually did the opposite and when asked if they were defying their own party, countered “you cannot have an ANC without Jacob Zuma”.

Thousands of supporters in front of the Durban High Court chanted struggle songs and praised Zuma.

Zuma addressed the crowds after spending close to 15 minutes inside the court room.

“I keep asking them what have I done for them to keep trying to bring me down but they have no answers but one day they will,” he said.

Among the top-ranking ANC officials in KZN was the province’s MEC for Economic Development and Tourism Sihle Zikalala who vowed to aid in defending the former president.

What is clear is that the ANC in KZN is still divided, with its members committing to prove Zuma’s innocence and unseating current president Ramaphosa before the 2019 elections. On the other hand, some others are calling for his prosecution by the court of law.

This case may take years to be concluded and political wars in the province may not augur well for the ANC.

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