Where did Steinhoff’s expert board go wrong?

In Greek mythology, Icarus ignores his father’s warning not to fly too close to the sun as the wax holding the feathers to his wings will melt. The young man plummets into the sea and drowns.

Time will tell if anyone on the Steinhoff board cautioned former CEO Markus Jooste about flying too close to the sun. They should have. The market has long been awash with concerns about debt levels and opaque accounting at Steinhoff. Some fund managers avoided investing in what was until recently a market darling.

With a R400-billion market value at its peak, Steinhoff was one of the biggest firms on the JSE. After a collapse in its share price this week it’s worth 15% of what it was in its heyday.

There were plenty of red flags. Legae Securities warned in May it was concerned about leadership and said the company might be vulnerable to “key-man risk” — overdependence on a dominant individual.

That fear was realised this week as Jooste resigned amid concerns of fraud.

The Steinhoff board is made up of some of the country’s smartest business minds, six of whom, including Jooste, are chartered accountants. Among the board luminaries are the now executive chairman Christo Wiese, and octogenarian founder Bruno Steinhoff, who started a furniture distribution business in Germany in 1964. He acquired Gomma Gomma Holdings with fellow Steinhoff board member Claas Daun in the 1980s. Other directors include the former CEOs of Absa and Sanlam, Steve Booysen and Johan van Zyl, activist-turned-businessman Jayendra Naidoo and other corporate heavyweights.

After rubbishing governance concerns published in a little-known management magazine in Germany in August, Wiese, who has built his empire through outsourcing daily management to a handful of trusted lieutenants, has taken over executive responsibility. It suggests he is facing the biggest crisis of his 50-year career as investors try to put a value on Steinhoff. Fools go where angels fear to tread. With a global footprint, the firm may attract more attention than just a fraud investigation in Germany. If there is any suggestion of impropriety related to Poundland in the UK or Mattress Firm in the US, regulators in those countries are likely to take an interest.

According to Bloomberg, Wiese’s wealth has more than halved this year, thanks to an 85% decline in the value of Steinhoff, but also due to a 51% drop in Brait, while Invicta and Tradehold, in which he is also invested, have seen valuations fall by a quarter.

The wheels came off spectacularly fast. The group warned on Monday its unaudited results would be published on Wednesday and that there were concerns about the financials. Late on Tuesday came Jooste’s shock resignation and news the results were being postponed. In a note to shareholders purportedly from Jooste, he apologised for making what he called big mistakes for which he needed to “take the consequences of my actions like a man”.

For organisations like Business Leadership South Africa, already fighting a tough battle against state capture, the Steinhoff saga on top of allegations of malfeasance at Naspers and multinationals like KPMG, SAP and McKinsey will do the corporate sector no favours.

With friends like these, BLSA must be thinking, who needs enemies?

Whitfield is an award-winning financial journalist, broadcaster and public speaker