‘I expect a lot of people are going to go to prison’

Steinhoff directors may be culpable for failing to intervene

● Steinhoff board members will not get away with pointing a finger at the group’s management to avoid prosecution for alleged fraud if they failed to know what they should have known regarding the company’s accounts.

The kind of knowledge required in the Companies Act is very wide. If one foresaw the possibility that Steinhoff’s statements were false and did not act, that would be enough. “I expect a lot of people are going to go to prison for this,” said James Grant, a practising advocate and visiting associate professor at Wits University.

“There can be no doubt that someone at Steinhoff must have known that the financials were false and that by presenting those financials, others were acting to their prejudice. The moment that is true, that person commits fraud.”

Markus Jooste, known as a charismatic, powerful CEO, appeared to take the fall for his “mistakes” when he resigned, saying in a letter to staff other executives had played no part in his errors.

Although the management and supervisory boards have been shuffled, the fact that some Steinhoff directors had retained their seats has been criticised.

“They could be trying to ensure that they are not held accountable,” said Zwelakhe Mnguni, of Benguela Global Fund Managers, who wrote to former chairman Christo Wiese when the scandal broke, calling for the whole board to resign.

This week, attempts to put questions to Len Konar and Steve Booysen, members of the independent subcommittee of Steinhoff’s board, were unsuccessful. The subcommittee was set up after the scandal broke but includes existing board members.

The Steinhoff supervisory board includes Booysen, the former Absa Group CEO; Konar, the independent nonexecutive chairman of Exxaro Resources; and Johan van Zyl, the former Sanlam Limited group CEO, where he remains a board member.

Konar and Booysen, both distinguished in accounting, said they were legally prohibited from answering specific questions because Steinhoff was in a closed period.

But if they are found to have failed in their duties, with the rest of Steinhoff’s top brass, they could face criminal proceedings under common law, with further consequences flowing from the Companies Act. Penalties can include disqualification from serving as a director, or being fined or jailed.

“As a rule, the response of directors is that they didn’t actively do anything wrong, which fails to appreciate that an omission or a failure to do something [they should have done] is also conduct in criminal law and can equally attract criminal liability,” said Grant.

“They may play the blame game and blame the person most directly [involved],” but the problem was, “the common law doctrine of common purpose and specific provisions of the Companies Act make what others do” their responsibility.

Fraud — the most likely crime to emerge from the scandal — involving more than R500 000 carries a minimum sentence of 15 years jail for a first offence. Under the Companies Act, directors may also face jail for up to 10 years for breaching confidence or falsifying accounting records.

Given the consequences facing board members, it is not surprising they have been silent, with Booysen only permitted to say in writing: “We are working hard to get into a position where there is stability in the company, reliable financial statements, and ensuring that the investigations are far enough advanced to enable us to begin taking the legal and other steps we intend to take based on the findings.”

Cassie Treurnicht, an analyst at Gryphon Asset Management, said it was unnecessary for the entire board to resign as Jooste appeared to be “the mastermind”.

“When investors asked Jooste a difficult question which he could not answer, he always just rumbled over the person’s question without addressing it, so there was an ego issue there. I’m pretty sure the same thing happened inside the corporation.

“There’s a couple of other businesses I am also concerned about, where there’s a single person at the top who becomes the whole corporation. Think about Discovery and Adrian Gore, Aspen and Stephen Saad, and EOH and Asher Bohbot,” said Treurnicht.

This week, rumours that Viceroy Research — which called Steinhoff a ponzi scheme in a report released in December — was preparing a report on another South African company, hit stocks such as Aspen and the Resilient group of companies.

Retail analyst Chris Gilmour said it was difficult to swallow that Jooste had run rings around the heavyweights on the board.

“You have characters on that board who are not exactly wilting violets here . . . I think they all share culpability on this one.”

Steinhoff directors may also have to defend their actions before European authorities — the company is listed in Frankfurt and its head office is in Amsterdam.

The Dutch Investors Association intends to bring a class action, which South African investors may join, while German authorities probe the company’s accounts.

There’s a single person at the top who becomes the whole corporation