Slow progress on Steinhoff sends negative message to investors about SA

Unethical behaviour in the private sector has a major impact, not only on the business involved in wrongdoing, but also on the image of the private sector in general.

The Steinhoff fraud saga came to light on 5 December 2017, making headlines in South Africa and globally.

But a year later, little progress has been made to hold those responsible to account.

Last year, former Chairman of Steinhoff Christo Wiese, former Chief Executive Officer Markus Jooste and former Chief Financial Officer Ben la Grange appeared before a joint meeting of Parliament’s standing committee on finance, the standing committee on public accounts as well as the portfolio committee on public service & administration, to give their account of the Steinhoff debacle. They have all maintained their innocence.

The wheels of justice turn slowly

Steinhoff is being investigated by the Hawks, and also by South Africa’s Financial Sector Conduct Authority (FSCA), after it was reported that Markus Jooste advised his friends to sell their stake in the company just days before the retailer’s stock plummeted.

The South African Institute of Charted Accountants (SAICA), meanwhile, has faced calls to speed up disciplinary action against allegedly high-profile errant accountants, including Steinhoff's Jooste.

The failure to take decisive disciplinary measures against Jooste so far does not only have a negative impact on the accounting profession, but it also has an impact on South Africa.

The Independent Regulatory Board for Auditors (IRBA), for its part, announced in December 2017 that it would review audits by Deloitte SA of Steinhoff’s parent company for years 2014 and 2015, and for Steinhoff’s SA subsidiaries for the year 2016.

Deloitte & Touché was responsible for auditing the books of Steinhoff Africa Retail for the past 20 years. The IRBA is a statutory body that oversees public accountancy in South Africa, verifies that only qualified auditors are admitted to the profession, and investigates if registered auditors adhere to ethical standards.

The IRBA announced in March that it had extended its investigation into the role of Deloitte in the auditing of Steinhoff’s financial statements by two years to 2012. It also informed the public that the probe is likely to take three years and it will depend crucially on the outcome of the PricewaterhouseCoopers (PWC) investigation of allegations of accounting irregularities by the global retailer – which has now been delayed.

Steinhoff’s Dutch shareholders filed a lawsuit against Deloitte for damages in June, accusing the auditor of failures in the accounting scandal that brought the South African global retailer to the brink of collapse. Deloitte, however, maintains that it did the right thing.

The Johannesburg Stock Exchange (JSE) Chief Executive Officer Nicky Newton-King stated, in December 2017, that Steinhoff’s suspension would be detrimental to the interest of investors because shareholders will not be able to trade, meaning that those who wanted to sell their shares would not be able to do so.

Another reason for not suspending the listing of Steinhoff on the JSE was that its primary listing was on the Frankfurt Stock Exchange (FSE), which had not suspended its trade.

Early last year, the JSE suspended Steinhoff’s preference shares which are primarily listed on the JSE because the company had failed to meet the 28 February deadline to publish its annual report. However, the trading of the company’s preference shares was not suspended on the Frankfurt Stock Exchange.

The Public Investment Cooperation (PIC), Africa’s largest pension fund with 1.2 million active members, manages assets of South Africa’s Government Employees Pension Fund (GEPF). At the end of November 2017, a few days before the Steinhoff debacle, GEPF held 428 million shares in Steinhoff with a market value of R24.1bn.

It has been estimated that the Steinhoff scandal cost the Government Employees Fund about R20bn. Early last year, the South African civil servants' union PSA teamed up with PIC to pursue a class action lawsuit, in a bid to recoup around R17bn of lost funds. In February last year, GEPF became the largest shareholder of Steinhoff after former chairman Christo Wiese cut his stake from 21% to 6.2%.

And yet… nothing?

It sends a negative message to investors that South African Chartered Accountants can behave unethically and won’t swiftly be held accountable for their actions. A potential loss of investment, in turn, can impact on economic growth.

Remarkably, despite the various responses to the Steinhoff scandal, the wheels of justice continue to move slowly.

The rate at which the Hawks' investigation is moving is, in my opinion, shocking, considering that billions of rands were lost. Enough time has passed to ensure measures are taken to see those responsible for the fraud face the music.

Moreover, the way the various authorities are handling the Steinhoff fraud case is creating the impression that private sector fraud is tolerated in South Africa. It would have been reasonable to expect that by now, those responsible would have seen their day in court.

Mlondi Mdluli is a BCom Economics student at the University of KwaZulu-Natal. Views expressed are his own.
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