Someone must take the fall at Steinhoff - maybe even more than one individual, says strategist

Steinhoff had a good story and did a good job in projecting only the positive. It never deviated from its openly communicated strategy, but as it continued the complexity increased too, prof. Marius Ungerer, a strategy and change leadership expert at the University of Stellenbosch Business School (USB) said on Wednesday.

He was part of a panel discussion on Steinhoff at an event hosted by 10X Investments.

Steinhoff International Holdings [JSE:SNH], domiciled in The Netherlands and with a primary listing on the Frankfurt Stock Exchange, has had to face the fall-out after an accounting scandal was exposed. The group's operating loss for the first half of the current financial year was €152m, for instance.

Former CEO Markus Jooste quit when the accounting irregularities came to light and the Hawks - among others - are investigating the issue.

"It was obvious when looking at Steinhoff's history that the company was accelerating the scale of mergers and acquisitions. This created a huge task of integration," said Ungerer.

"The underlying drivers and complexities in the businesses and the health of the underlying businesses ended up not being focused on."

As for the question of how Steinhoff's auditors could have "missed" things that should have raised the alarm, Ungerer said accounting firms are not there to audit the strategy of a firm, but to say whether the figures are correct.

"One can go the regulatory route and say: ‘here are more rules’, but that is limited. After the global financial crisis, more rules were made but has that made the world a better place?" he asked.

"On the other hand, you can increase your chances of success if you focus on those groups with access to non-public information, for instance the boards of companies."

An analysis of Steinhoff by Ungerer shows huge governance inefficiencies existed at Steinhoff.


"Many people think compliance just means doing the minimum. Of course, employees also have access to information, but that raises the question of the effectiveness of protecting whistle blowers," he explained.

Shareholder activism is an important aspect for him.

"In SA most boards still just 'have a good time' without a focus on shareholder activism. The role of the media is also very important to give a voice to those without a voice. One must also distinguish between executive and non-executive officers of a company," he said.

He would be careful to put any hope on regulatory intervention being effective.

"The Steinhoff case shows the human failure of the scrutiny of directors and the diligence in their roles. Much more can be done around, not financial auditing, but ethical auditing in firms as opposed to thinking the answer lies in taking the regulatory route," said Ungerer.

Brilliant and charismatic leader

He said Jooste fits all the criteria of a brilliant and charismatic leader.

"A charismatic leader can either be very bad or very good for a company. He can convince people to invest and, if he is surrounded by the best advisers that money can buy, you can talk yourself out of anything," said Ungerer.

"When fraudulent activities happen, rationalisation is part of the pattern. It is possible that insiders were told things are being done for their benefit and that it is legal - though in a grey area - and that he is just fulfilling his mandate to increase the wealth of shareholders."

Ungerer said there is clearly now an investor confidence dilemma. For him the Steinhoff dilemma is just seeing the actions around it in terms of more financial restructuring as opposed to a fundamental review of business practices that needs to happen.

"The executives at Steinhoff are still about the same people. They were part of the dilemma. I am looking for more drastic actions in the 'in between time', but we are not seeing that. We are just seeing more 'financial engineering'. Someone must take the fall - maybe even more than one individual," he concluded.

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