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

It was an eventful rainy Thursday afternoon. Workers left their desks to watch the action through their office windows. It was one of the many marches against state capture. On this day, civil society organizations were picketing outside the office of global consultancy McKinsey, right opposite the FORBES AFRICA headquarters in Sandton, South Africa.
McKinsey is one of the many companies, in the country, implicated in alleged corrupt dealings between state-owned power utility Eskom and consultancy firm Trillian. McKinsey and Trillian stood to earn more than $490 million from Eskom.
It has been a year of drama in corporate South Africa. As strange as it may sound, a lot of South Africa’s protests, like this, have one family as the common cause.
Weak-kneed politicians allegedly allowed members of the Indian-born Gupta family to wield undue influence. This influence has gone from meddling with the state’s top jobs to conniving with private and public companies to act in their favor.
Another company in hot water is Bell Pottinger, a British public-relations firm connected to the Guptas by a $130,000-a-month contract. It was stripped of its membership in the Public Relations and Communications Association (PRCA) in the UK, after it was found that the PR agency deliberately fanned racial tensions, with creations like &#8216;white monopoly capital&#8217;, in South Africa, in favor of Zuma, while it worked for the Gupta-owned Oakbay Capital.
“We took this decision because we were not satisfied by the explanations given. We have never passed down such a damning indictment,” says Nicholas Dunn-McAfee, Head of Public Affairs, Policy and Research at PRCA.
<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>
It gets worse.
For years KPMG South Africa has said it stands for integrity. Instead, the tax, advisory and auditing firm now stands alleged of giving advice so that money can be taken to Dubai to avoid tax payments. They also turned a blind eye to several conflicts of interest while auditing 36 Gupta-linked companies and compiled the so-called South African Revenue Services (SARS) rogue spy unit report which was used as part of the smear campaign against former Finance Minister, Pravin Gordhan.
There are consequences.
For KPMG, for example, pressure has been piling. The firm withdrew all its findings in the ‘rogue unit’ report; senior executives, including CEO Trevor Hoole, resigned; and it has been dumped by major clients, among them, Sasfin Bank, Sygnia Asset Management, the energy investment company Hulisani, and the University of the Witwatersrand.
Like the protesters in Sandton, Magda Wierzycka, Chief Executive Officer at Sygnia Group, an asset management company, says all involved should be held accountable, stripped of their licenses, fined and even jailed.
“There are no excuses. They did what they did for money. They were not ignorant of what they were doing,” she says.
Opposition political parties, rights groups and private citizens are playing their part to make sure unethical companies are punished. The problem is corporate misgovernance affects the whole country.
<div id="attachment_34798" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34798" class=" wp-image-34798" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Alastair-Macduff-Chairman-and-Chief-Executive-Officer-of-the-Turnaround-Management-Association-Southern-Africa.-copy-200x300.jpg" alt="" width="300" height="451" />Alastair Macduff, the Chairman and Chief Executive Officer of the Turnaround Management Association Southern Africa. (Photo supplied)</div>
South Africa was downgraded to junk status and went into a recession. At the time of writing this article, $1 was equivalent to R14.16 at its worst, it went to about R17 to the dollar. It means business confidence is at an all-time low.
“Businesses are feeling the impact of low investor confidence, weakening exchange rates and high fiscal uncertainty,” says Alastair Macduff, Chairman and Chief Executive Officer of the Turnaround Management Association Southern Africa.
“Restoring investor, business and consumer confidence will require a concerted effort to address these pressing issues – and address them in the best interests of the country as a whole,” he says.
Wierzycka agrees.
“In a funny way, what has happened to KPMG and McKinsey is actually very positive… Positive in terms of waking corporate South Africa to what is happening and to the fact that they can no longer sit on the fence and stay silent,” she says.
According to Wierzycka, South Africa’s corporate sector is suffering from a moral crisis.
“The dilemma is, do you change providers based on the fact of they are implicated in state capture even when it’s inconvenient to do so?”
<div id="attachment_34795" style="width: 510px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34795" class=" wp-image-34795" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Mckinsey-strike-501-300x200.jpg" alt="" width="500" height="333" />People protests against corruption outside the McKinsey office in Sandton, Johannesburg. (Photo by Motlabana Monnakgotla)</div>
Wierzycka has lived it. She offered Bianca Goodson, former Trillian CEO turned whistle-blower, a job. This after Goodson’s new employer, Sage, accepted her resignation after she told them she was blowing the whistle on her previous employer. Goodson provided documented evidence that the Gupta-linked firm swindled hundreds of millions from state-owned enterprises Transnet and Eskom. Wierzycka called Goodson, and all whistle-blowers, heroes.
“When I heard what Sage did, I was actually breathless. The true heroes of the story of South Africa are the belittled whistle-blowers… Bianca took tremendous risks in disclosing the information she disclosed on Trillian, McKinsey, Eskom and a number of others. It seemed a completely natural thing to reach out to her, if anything else, to reassure her that she is not alone in this fight. When I did, I met a lady who is incredibly competent. So let’s be clear, I gave her a job, not because she is a Trillian whistle-blower but because I encountered a woman of tremendous bravery with a strong moral compass and qualifications that are arms long,” says Wierzycka.
<div id="attachment_34797" style="width: 311px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34797" class=" wp-image-34797" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Magda-Wierzycka-Chief-Executive-Officer-at-Sygnia-Group-200x300.jpg" alt="" width="301" height="452" />Magda Wierzycka, Chief Executive Officer at Sygnia Group. (Photo supplied)</div>
Goodson has a five-year-old daughter and, according to Wierzycka, she was petrified.
“My biggest concern was her personal safety. If she had died in a random hijacking, no one would think because no one knew her name. So, what I thought was that the most important thing that needed to happen was to get her name out there in the headlines.”
Wierzycka’s good fight doesn’t end there.
Earlier this year, Sygnia started a new money market unit trust and the firm said it will donate 100% of the management fees, earned on the fund, to non-political organizations fighting corruption. Sygnia also fired KPMG when news on state capture allegations broke.
“At the end of the day, I think it’s up to each company to make a choice. In the instance of KPMG, their board of directors make up their own minds as to whether what they’re seeing is what they expect to be seeing from their service provider and how serious they view what the company has done. In the instance of McKinsey, do you honestly want to do business with a company that has robbed South African taxpayers while we have a tiny taxpayer base supporting such vast percentages of the South African population which is living in inequality… Are you happy, morally, to do business with a business like that? That’s a question each board of directors has to ask,” says Wierzycka.
Another problem with some corporate companies is that they use denial as a first response when they are embroiled in a crisis. It creates a bigger mess.
KPMG South Africa, as an example, hired Nhlamu Dlomu, previously Head for People and Change, to clean up the mess as their new CEO. She couldn’t answer many questions posed to her, probably because she wasn’t prepared to be the CEO of one of the four top audit companies in the country that was facing its greatest crisis.
Women CEOs in times of corporate crisis may be a global trend.
A PwC report found that 38% of female CEOs are forced out of the office; compared to 27% of male CEOs. Another study, by Utah State University researchers, found boards are more likely to promote women and minorities to top leadership roles when an organization is in crisis.
“To me, that was a typical response of an international company that thinks  putting a fairly attractive female in front of clients is going to solve the problem… I think that the reason they are losing the battle in the court of public opinion is because they’re arrogant,” says Wierzycka.
<a href="http://www.forbesafrica.com/focus/2017/04/01/give-us-water-not-statues/" target="_blank" rel="noopener">READ MORE: Give Us Water Not Statues</a>
Before firing KPMG, Wierzycka says she advised the audit firm to withdraw the entire ‘rogue unit’ report and they refused.
“I said, ‘let’s talk about the money then, because we know that this is blood money, whether it’s stolen from taxpayers or the farming community in the Eastern Cape. R63 million ($4.43 million) will go a long way towards fighting corruption. So donate all this money to organizations which are fighting corruption in South African courts. At least try to redeem yourself in the eyes of the South African public.’ I was told no…,” recalls Wierzycka.
KPMG only withdrew sections of the report, under questioning in parliament, admitting that it was wrong about the SARS report and that their conclusions and recommendations were incorrect.
Clearly, it will take more than marches in Sandton to bring about change.
<div id="attachment_34801" style="width: 360px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-34801" class=" wp-image-34801" src="https://www.forbesafrica.com/wp-content/uploads/2017/12/Sylvester-Chauke-Founder-DNA-Brand-Architects-300x277.jpg" alt="" width="350" height="323" />Sylvester Chauke, Founder DNA Brand Architects (Photo supplied)</div>
<h1>How To Weather A Corporate Storm</h1>
Sylvester Chauke loves to communicate. We meet him in his well-decorated office in Fourways, Johannesburg. As we enter, we are welcomed by multiple awards on the walls behind and in front of his desk. It is like we have entered a trophy factory.
“I don’t know how many awards I have. Not all of them are here but this is all inspiration and it is kudos to the hard work we do,” he says.
This is a world away from where it all started.
At 12 years old he went for a TV commercial audition. He loved it. Since then, he knew he wanted to work in the media industry.
There was research and soul searching. It ushered in a marketing and advertising communications degree, from the University of Johannesburg, and an internship. He never looked back.
Five years ago, he founded DNA Brand Architects; a marketing and brand consultancy company that advises people on how to avoid or deal with corporate crisis. He employs 34 people and counts Vodacom, Edgars, Bonang Matheba, Steers and Wimpy among his clients.
“It is all about taking all these fields of communication, whether it’s broadcasting, advertising, and brand communication, into one space,” says the 36-year-old.
According to Chauke, it is very obvious that there is a corporate communication crisis in South Africa. He says in most businesses, communication is just seen as PR. They send press releases and hope for the best. They don’t plan for a crisis.
“Most businesses don’t think that they have to think and plan for it, they just become overly confident, to some extent quite arrogant, to think that they are such great brands that can sort of overcome anything. We are seeing it right now with the likes of Bell Pottinger, KPMG and McKinsey. It is indicative of that communication is a ‘by the way’ thing,” says Chauke.
It is dangerous. When companies say the wrong thing, they risk losing their clients, or worse, the company. According to Chauke, planning for a crisis isn’t rocket science.
“Most of the time you can anticipate issues. For example, when your financial results come out and they are not good, you should plan what you are going to be saying to the stakeholders about the performance. It is the same if you are going to be retrenching 2,000 people, you need to be prepared.”
Chauke says every business needs a crisis management plan, reviewed annually, for crises they can’t anticipate.
“The biggest challenge that we have is people think because you are a CEO, and you speak to a crowd of 1,000 in a conference, you can handle media. That is so not true. You need an experienced spokesperson to handle that.”
He says Africans should inspire the world.
“I think that if the way that we do business is given a chance and doesn’t get distracted by all the corruption, scandals and corporate blunders, the way we do business would inspire others because we push regardless,” he says.
Maybe this is just the kind of inspiration corporate South Africa needs.

Tag: McKinsey

FORBES AFRICA SOCIAL MEDIA

Steinhoff scandal points to major gaps in stopping unethical corporate behaviour

Anger At The Corporate Slippery Slope