Steinhoff investors looking for answers

Steinhoff shareholders keen to know why red flags were missed

MOST South Africans who invested are poorer today due to Steinhoff’s business collapse and are asking for answers from fund managers.

But they say the business was so complicated‚ with audited financial statements appearing so reasonable‚ that it was easy for investors to miss red flags pointing to the alleged multibillion-dollar fraud.

Steinhoff’s share price dropped from R46.60 at close of trading on Tuesday last week to R12.74 a week later.

The company has reported a missing R100-billion in its European operations.

Fund manager Simon Brown said South African pension holders and investors were about R160-billion poorer since the crash.

As hundreds of funds would have lost money, it was difficult to put an exact figure on the losses.

But while furious South Africans are demanding answers from investors, a number of fund managers said that until Tuesday last week the numbers looked reasonable and that fraud by its nature was subtle.

The search for answers follows parliament’s standing committee on public accounts calling yesterday for the Hawks‚ SA Revenue Service‚ SA Reserve Bank and Independent Regulatory Board of Auditors to investigate Steinhoff’s implosion and financial losses.

Not everyone is buying the investors’ explanations‚ with some Steinhoff critics questioning what they called the company executives’ loose accounting practices.

Futuregrowth chief investment officer Andrew Canter said they had stopped lending money to Steinhoff about eight years ago.

He said they had avoided Steinhoff for multiple reasons‚ which included the business’s horrendous complexity‚ involving different brands and companies across different jurisdictions in multiple currencies.

There were also never-ending acquisitions, which rendered year-on-year analysis difficult and credit ratios unreliable.

“If we can’t understand the business‚ why would we lend to it?”

Canter said Futuregrowth was wary of the way Steinhoff’s management conducted business.

He said there were enough signs which evidently some had chosen to ignore.

“From what we know today‚ Steinhoff’s management appears to have been playing fast and loose with the tax laws and accounting practices.”

However, investor Karin Richards, who has looked back at the Steinhoff cash flow and ratios investors use when scrutinising businesses, said: “There is nothing here for me that says ‘Oh my, here is a big problem’.”

She said as a former auditor she had a better idea than average on how to window-dress accounts.

“But the numbers look reasonable.”

She said many funds would have lost their first inflation base gains in three years.

Fund manager Keith McLachlan pointed out how, when the Steinhoff saga came to light, people started claiming investors should have spotted the fraud. “Everyone knew it was fraud – after the fact,” he said.

“Intuitively‚ if one ignores the complexity of the Steinhoff business‚ if it was obviously fraud‚ not only would the stock market have seen it‚ but the auditors would have picked up on it long before it even saw the light of day.

“Nothing in the Steinhoff financial statements really screamed fraud or deep obfuscation of the numbers.

“At best‚ it perhaps looked like a business that was growing a bit too fast. At worst‚ it showed a business whose fundamentals weren’t particularly great. Fraud by its very nature is subtle.”

Wits governance expert Alex van den Heever said the question that needed to be asked was why some investment and equity loan companies saw the red flags but others did not.

“That some firms didn’t pull their funds despite other companies’ concerns points to a bit of an ‘old boys club’ operation, with people just accepting the word of others in the industry,” he said.

Brown said the financial industry needed introspection.

“Should we not at least as an industry that looks after people’s pensions have some introspection how we got this wrong?

“There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business.

“Yet‚ we put R400-billion in pension money into this business.”

The R400-billion is when the business was R95 a share some time last year.

Financial analyst Stuart Theobald agreed that the numbers had appeared reasonable, but said people trusted Steinhoff main shareholder Cobus Wiese.

“People had committed faith in his abilities to manage complexity and stay on the right side of the law‚ while sometimes going close to the line,” he said.

Meanwhile, the Department of Trade and Industry and the Companies and Intellectual Property Commission plan to investigate allegations of non-compliance by Steinhoff with the Companies Act and its regulations.

The department said yesterday it had noted with concern allegations of governance failures and financial irregularities‚ which led to the resignation of Steinhoff chief executive Markus Jooste.

“The department will further suggest that the Independent Regulatory Board for Auditors also consider the role of auditors.”

There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business

AMAN phoned our newsroom last week to complain bitterly about the Steinhoff scandal. He was particularly irked because he believed the matter was handled with kid gloves by all those he viewed as instruments of social justice.

Leading the pack of culprits in his eyes was the media.

He complained that we had largely ignored the story.

I pointed out to him that the Steinhoff news was in fact the front page lead in this newspaper on that very day.

He then went on to vent about how private sector corruption generally received much more lenient treatment compared to public sector corruption.

Not just in the media, he said, but throughout the legal and social systems of accountability.

“Had the Steinhoff crooks been black, they would probably been in jail by now,” he said.

It is a narrative I am all too familiar with.

I found his attitude abrasive and dismissive, and therefore did not further engage with him. I should have. Beneath the hubris of his statements was a legitimate grievance that we all ought to engage with soberly.

The first is about the perceived inadequacy of the South African criminal justice system to deal proactively and appropriately with complex white collar crime on a larger scale.

Of course if you are a bookkeeper who has stolen a million bucks from your mid-sized employer, you are likely to be caught and jailed for it.

We have reported on many of those.

This is not what my caller was complaining about.

His issue, and that of many citizens, is that in this country giant corporate thieves are likely to be exposed and, to some degree, held accountable by foreign law enforcement rather than our own.

For example, it was German tax authorities which raided Steinhoff’s offices back in 2015 following initial allegations of accounting fraud.

It was also German prosecutors who began probing Steinhoff as claims grew that the company could be one giant pyramid scheme.

The point is that in this case, and many others that involve major economic players, our law enforcers are often caught sleeping.

The tragedy here is the reinforcement of inequality – the very idea of a separate brand of justice for the rich and powerful compared to the rest of us. The second point of my caller’s complaint is equally important.

It has dominated social discussions since the Steinhoff scandal broke out last week – the media’s coverage of it.

Here let me say that in my view, there are two types of people who have complained about the coverage of story.

The first are those whose narrative is predetermined, not necessarily based on facts and has nothing to do with the principle of transparency.

Theirs is a politically-inspired and relentless campaign to wholly discredit the media as a legitimate vehicle of information.

Doing so means the media cannot be trusted in its coverage of the rot in government.

The Steinhoff story therefore only presented them with another opportunity to do so.

Engaging with them is in my view a waste of everyone’s time.

My interest is in the second kind of critic, those who have raised legitimate concerns about the quality of coverage of the Steinhoff story and corporate corruption in general.

Here, it is not so much the prominence and volume of Steinhoff stories that is at issue – the story has made headlines across the board.

It is that by and large, the story has not been told comprehensively.

Its impact on ordinary South Africans has not been extensively explored and not all the crooks responsible for the collapse of this company have been adequately exposed in a similar fashion as, say, a Brian Molefe.

There may be several reasons for it.

The most popular critical narrative of the media around this is often that it is a result of some sinister, politically inspired plot by media owners to shield white corruption from the masses.

I will not speak on behalf of industry colleagues, suffice to say this has definitely not been my experience.

Further, some of my industry colleagues suggested that the problem was a lack of will from journalists. Perhaps it is, I do not know. My view is that much of it has to do with the capacity of financial reporting in newsrooms across the country.

Barring some pockets of excellence that exist in our industry, the ugly truth is that the ability to probe complex, financial and corporate scandals is not in abundance in newsrooms.

Unlike with government, corporate whistle-blowers are few and far between. And let’s be honest. Delving into the Frankfurt stock exchange to find dirt on Steinhoff and then unpacking what it means for an average South African teacher’s pension takes a lot more time and expertise than, say, going through a report by the public protector on yet another state corruption case.

For me this is the elephant in the room that needs to be addressed.

This year, perhaps more than any other, has exposed us to the prevalence of corporate graft, the politics that promote it and the extent of its impact on every one of us.

The Steinhoff saga poses some uncomfortable questions about how well we tell the South African story.

How we reflect on those questions demonstrates how committed we are to our craft.

The Steinhoff saga poses some uncomfortable questions about how well we tell the South African story