Steinhoff: even the experts have so many questions

It is likely that they will learn the answers to the obvious questions – including When did it all go wrong? Who was in the know? – along with the rest of us in the next months as the forensic audit and other investigations are completed.

However, the members of the panel seemed to doubt whether the completion of the various probes would necessarily result in all, or even any, of the guilty parties being held accountable for the disaster that wiped out a lot of value for South African investors, including retirement savers.

Also, the panellists who took part in a discussion at a media breakfast before Daily Maverick’s The Gathering: Media Edition, all expressed hopes that other questions might be answered, such as What can we learn from this? And How can we make sure this doesn’t happen again?

Perhaps the story of the company that went so quickly from being a great South African success story to its biggest corporate failure will end up being a case study for business schools, the authorities and, most importantly, for regulators in South Africa.

But there is a way to go before that happens. Despite being experts on investing and/or Steinhoff in particular, the panellists at the breakfast discussion, which was hosted this week by 10X Investments, expressed some degree of shock that this huge corporate scandal could have happened.

One would think that South Africa had all the checks and balances in place to prevent what looks like excessive corporate fraud over a long period of time. And it is not as if Steinhoff was operating in the shadows. It was a very public success story.

And, as one of the panellists, James-Brent Styan, author of Steinhoff en die Stellenbosse Boys, said, the company’s audits were signed off year after year. Himself a former auditor, Styan noted that this was done by a reputable audit firm. It goes to show that there is no better cover than broad daylight.

The panel’s chair, the Daily Maverick’s assistant editor, Marianne Thamm, asked whether it was the role of the Johannesburg Stock Exchange (JSE) to monitor the companies it lists.

But, Nathan, who is also the founder 10X, the disruptive asset manager, said: “The JSE itself cannot take on the role of assessing each listed company’s activities or investigating its products, a stock exchange is simply not set up to do this.”

He added: “Rather, the role of the JSE is to provide the market-place for the trading of shares. When the JSE looks at the documents it receives from companies, it should have no reason to doubt their validity or their accuracy, since these documents are prepared by registered auditors and accounting firms, lawyers, and other consultants whose credibility should not have to be questioned.”

Nathan added that the crisis at Steinhoff required failures on the part of many other parties. “Surely among the executive management team of the company, the board of directors, the banks who funded huge projects that the company was driving, the advisors, auditors and the lawyers who worked with the company over the years, someone should have noticed that something was not totally above board,” Nathan said.

The third panellist, Professor Marius Ungerer of the University of Stellenbosch’s Business School, who is co-author of the University of Stellenbosch Business School report, The Business Perspectives on the Steinhoff Saga, pointed to the personality of Steinhoff’s CEO, Markus Jooste, as a factor in the very belated revealing of the company’s troubles. Ungerer said he believed that Jooste was able to pull the wool over so many people’s eyes for so long because he told such a compelling story about Steinhoff and was such an impressive individual.

But, he said, “it is the duty of a Board to question and to demand answers … Our research suggests that the Steinhoff Board did not do enough, and this is something that will need more investigation.”

Styan pointed to one obvious indicator that something was not right that appears to have been ignored: “Steinhoff was able to get away with paying tax for a number of years at an effective rate of between 8 and 15%, which is way lower than any other business pays. Surely this should have made auditors sit up and ask some questions.”

The other panellists also raised various concerns about regulatory loopholes and failures and Nathan said that it wasn’t enough to rely entirely on regulation.

“By its very nature it [regulation] is backward-looking, and regulation in South Africa tends to be done on a tick-box basis. Regulators do not generally have the insight or the knowledge to be able to anticipate what could go wrong in the future.”

Another weakness that was noted in the system was the lack of suitable resources, including skilled people, working with the regulators.

Here, it was Styan who noted that the Hawks, whose job it was to investigate serious and complicated financial crimes, currently did not have even one Chartered Accountant as a permanent employee.

“How can one expect this body to be able to investigate and convict a sophisticated fraudster with such a gap in skills?” he asked.

It seems the Steinhoff debacle is the result of various failures by different bodies and getting to the bottom of it will be a long and complex process with various people and bodied sharing the blame.

But will we learn from it? History suggests not.

And will anyone be held accountable? The alarming consensus on the panel was that it is quite possible that no heads will roll at all.

Another worrying point raised by the various panellists through the discussion was that there was little way of knowing how many other similar cases are developing undetected.