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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.

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Johnson & Johnson Moves to Limit Impact of Report on Asbestos in Baby Powder

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 Johnson & Johnson on Monday scrambled to contain fallout from a Reuters report that the healthcare conglomerate knew for decades that cancer-causing asbestos lurked in its Baby Powder, taking out full-page newspaper ads defending its product and practices, and readying its chief executive for his first television interview since investors erased tens of billions of dollars from the company’s market value.

J&J shares fell nearly 3 percent Monday, closing at $129.14 in New York Stock Exchange trading. That drop was on top of the 10 percent plunge that wiped out about $40 billion of the company’s market capitalization following the Reuters report Friday. J&J also announced Monday that it would be repurchasing up to $5 billion of its common stock.

Senator Edward Markey, a Massachusetts Democrat on the Environment and Public Works Committee, on Friday sent a letter to the head of the U.S. Food and Drug Administration calling on the agency to investigate the findings in the Reuters report to determine whether J&J misled regulators and whether its Baby Powder products threaten public health and safety.

J&J Chief Executive Alex Gorsky, in his first interview since the Reuters article was published, defended the company during an appearance on CNBC’s “Mad Money” with host Jim Cramer on Monday night. J&J knew for decades about the presence of small amounts of asbestos in its products dating back to as early as 1971, a Reuters examination of company memos, internal reports and other confidential documents showed. In response to the report, J&J said on Friday that “any suggestion that Johnson & Johnson knew or hid information about the safety of talc is false.”

A Monday full-page ad from J&J — headlined “Science. Not sensationalism.” — ran in newspapers including The New York Times and The Wall Street Journal. The ad asserted that J&J has scientific evidence its talc is safe and beneficial to use. “If we had any reasons to believe our talc was unsafe, it would be off our shelves,” the ad said.

J&J rebutted Reuters’ report in a lengthy written critique of the article and a video from Gorsky. In the written critique, posted on the company’s website, J&J said Reuters omitted information it supplied to the news organization that demonstrated the healthcare conglomerate’s Baby Powder is safe and does not cause cancer; that J&J’s baby powder has repeatedly been tested and found to be asbestos-free; and that the company has cooperated with the U.S. FDA and other regulators around the world to provide information requested over decades.

“Since tests for asbestos in talc were first developed, J&J’s Baby Powder has never contained asbestos,” Gorsky said in the video. He added that regulators “have always found our talc to be asbestos-free.”

A Reuters spokeswoman on Monday said the agency “stands by its reporting.”

Reuters’ investigation found that while most tests in past decades found no asbestos in J&J talc and talc products, tests on Baby Powder conducted by scientists at Mount Sinai Medical Center in 1971 and Rutgers University in 1991, as well as by labs for plaintiffs in cancer lawsuits, found small amounts of asbestos. In 1972, a University of Minnesota scientist found what he called “incontrovertible asbestos” in a sample of Shower to Shower. Other tests by J&J’s own contract labs and others periodically found small amounts of asbestos in talc from mines that supplied the mineral for Baby Powder and other cosmetic products into the early 2000s.

The company did not report to the FDA three tests by three different labs from 1972 to 1975 that found asbestos in the company’s talc.

The Reuters story drew no conclusions about whether talc itself causes ovarian cancer. Asbestos, however, is a carcinogen. The World Health Organization’s International Agency for Research on Cancer has listed asbestos-contaminated talc as a carcinogen since 1987. Reuters also found that J&J tested only a fraction of the talc powder it sold. The company never adopted a method for increasing the sensitivity of its tests that was recommended to the company by consultants in 1973 and in a published report in a peer-review scientific journal in 1991.

The ad J&J ran in newspapers Monday also pointed to an online talc fact page the company created with “independent studies from leading universities, research from medical journals and third-party opinions.”

That website has changed since early December, according to a Reuters review of online archives.

The website, for instance, no longer contains a section headlined “Conclusions from Global Authorities” that as recently as Dec. 5 listed organizations including the U.S. FDA, the European Union and Health Canada as among entities that have “reviewed and analyzed all available data and concluded that the evidence is insufficient to link talc use to cancer.”

On Dec. 14, the day Reuters published its report, that section of the website had been removed. It is not clear exactly when the online page changed.

The Canadian government released a draft report this month that found a “consistent and statistically significant positive association” between talc exposure and ovarian cancer. The draft report also said that talc meets criteria to be deemed toxic.

The draft report put forth proposed conclusions that are subject to a public comment period and confirmation in a so-called final screening assessment, Health Canada said.

If the conclusions are confirmed, Canadian officials will consider adding talc to a government list of toxic substances and implementing measures to prohibit or restrict use of talc in some cosmetics, non-prescription drugs and health products, Health Canada said.

A J&J spokeswoman said the company removed the website section after the Canadian government issued the draft report. “We chose to be conservative while that draft is under review,” the spokeswoman said.

While J&J has dominated the talc powder market for more than 100 years, the products contributed less than 0.5 percent of J&J’s $76.5 billion in revenue last year. – Reuters

  • Mike Spector, Lisa Girion and Ankur Banerjee 

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South Africa’s Tamaryn Green is first runner-up at Miss Universe pageant

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 Catriona Gray from the Philippines was crowned Miss Universe on Monday, the fourth time the Southeast Asian country has won the international beauty pageant.

Gray, a 24-year-old Filipino-Australian model, won the title in the Thai capital Bangkok where the pageant included for the first time a transgender contestant.

“My heart is filled with so much gratitude. There were moments of doubt where I felt overwhelmed and I felt the pressure,” said Gray, who wore a red and orange dress that was inspired by Mount Mayon, a volcano that erupted this year.

Miss South Africa, Tamaryn Green, 24 was the first runner-up, followed by Miss Venezuela, Sthefany Gutiérrez, 19.

Gray was asked during the contest about her views on legalizing marijuana and replied that she supported it for medical uses.

After she was crowned, Gray told reporters the question was “definitely relevant” and “an active topic”, in an apparent reference to the war on drugs in the Philippines that has killed thousands of Filipinos and caused international alarm.

Gray said during the pageant that working in a Manila slum had taught her to find beauty in difficult situations.

“If I could teach people to be grateful, we could have an amazing world where negativity could not grow and foster, and children would have a smile on their face,” she said.

Miss Spain, Angela Ponce, 27, made history as the first transgender contestant in the 66-year-old pageant.

Gray is the fourth Filipina to win Miss Universe and the second in three years. The pageant was shown live on the country’s biggest television network and dominated social media.

Salvador Panelo, spokesman for President Rodrigo Duterte, said her win would put the country on the world map for its “beauty and elegance.”

“In her success, Miss Philippines has shown to the world that women in our country have the ability to turn dreams into reality through passion, diligence, determination and hard work,” he said.

The Philippines previously won Miss Universe titles in 2015, 1973 and 1969. – Reuters

  • Patpicha Tanakasempipat and Neil Jerome Morales 

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Youtube, Under Pressure for Problem Content, Takes Down 58 Million Videos in Quarter

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YouTube took down more than 58 million videos and 224 million comments during the third quarter based on violations of its policies, the unit of Alphabet Inc’s (GOOGL.O) Google said on Thursday in an effort to demonstrate progress in suppressing problem content.

Government officials and interest groups in the United States, Europe and Asia have been pressuring YouTube, Facebook Inc (FB.O) and other social media services to quickly identify and remove extremist and hateful content that critics have said incite violence.

The European Union has proposed online services should face steep fines unless they remove extremist material within one hour of a government order to do so.

An official at India’s Ministry of Home Affairs speaking on the condition of anonymity on Thursday said social media firms had agreed to tackle authorities’ requests to remove objectionable content within 36 hours.

This year, YouTube began issuing quarterly reports about its enforcement efforts.

As with past quarters, most of the removed content was spam, YouTube said.

Automated detection tools help YouTube quickly identify spam, extremist content and nudity. During September, 90 percent of the nearly 10,400 videos removed for violent extremism or 279,600 videos removed for child safety issues received fewer than 10 views, according to YouTube.

But YouTube faces a bigger challenge with material promoting hateful rhetoric and dangerous behavior.

Automated detection technologies for those policies are relatively new and less efficient, so YouTube relies on users to report potentially problematic videos or comments. This means that the content may be viewed widely before being removed.

Google added thousands of moderators this year, expanding to more than 10,000, in hopes of reviewing user reports faster. YouTube declined to comment on growth plans for 2019.

It has described pre-screening every video as unfeasible.

The third-quarter removal data for the first time revealed the number of YouTube accounts Google disabled for either having three policy violations in 90 days or committing what the company found to be an egregious violation, such as uploading child pornography.

YouTube removed about 1.67 million channels and all of the 50.2 million videos that were available from them.

Nearly 80 percent of the channel takedowns related to spam uploads, YouTube said. About 13 percent concerned nudity, and 4.5 percent child safety.

YouTube said users post billions of comments each quarter. It declined to disclose the overall number of accounts that have uploaded videos, but said removals were also a small fraction.

In addition, about 7.8 million videos were removed individually for policy violations, in line with the previous quarter. – Reuters

– Paresh Dave and Sankalp Phartiyal 

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