Abridged report on Steinhoff doesn’t tell us much
March 15 saw the “release” of the much-anticipated PwC report on what went wrong at Steinhoff.
The current Steinhoff board indicated that it would not release the entire report, which is supposedly 15,000 pages long, but would publish an abridged version.
And so it did.
The problem lies in the interpretation of the word “abridged”.
Whereas the SA public expected an expose, it received a few pages of illegible “accountant-speak”, with no clear confirmation of who did what.
Perhaps it was naïve to expect more, but given the massive scale of value destruction, which touched almost every South African who had some savings, one would have hoped that the board would consider the “human” aspect of this tragedy.
Unfortunately, it did not.
Instead the only thing it considered was its legal obligation and potential personal liability.
The duties of directors are codified in the Companies Act, which states that directors must exercise their powers, and perform their functions in good faith and for a proper purpose, in the best interests of the company, and with the requisite degree of care, skill and diligence.
The key words are “in the best interests of the company”.
In the normal course of events, the interests of the company and its shareholders are perfectly aligned and hence directors, by extension, act in the best interests of the shareholders.
Unfortunately, in cases where a company has conducted its affairs in a fraudulent manner the relationship between directors and shareholders breaks down.
In the case of Steinhoff, shareholders have already started the legal process of suing the company, directors and the auditors – in fact, anyone connected to the company who may have deep pockets.
The directors are thus put in a position of having to protect the company against such action while at the same time pursuing those responsible for the fraud.
The PwC report was therefore never going to see the light of day.
It is an internal exercise meant to enable the directors and former directors to get a handle on what transpired.
It was never going to be released to those suing the company to be used as a tool in their litigation.
Unfortunately, over the past year, the media, commentators and even the directors have created the impression that the PwC report was going to provide a full explanation and some closure.
It was to be the lightning rod pointed at Markus Jooste and his confederates, leading to immediate arrests and speedy prosecutions.
Nothing could be further from the truth.
While Jooste may see the inside of a courtroom in years to come, the likelihood of a jail cell anytime soon is remote.
The fraud committed against Steinhoff spanned multiple jurisdictions, involved many players and complex transactions, and took place over many years.
Each transaction will be analysed, argued over in front of financially unsophisticated judges and appealed – the circus is likely to take years and cost millions.
There will be civil cases against all involved, including the directors, and hopefully criminal prosecutions run by the NPA and its international peers.
Frankly, from the NPA’s perspective, it would be easier to use the “Al Capone” strategy against Jooste: choose a simple but lethal charge – just one – and go for it, guns blazing.
The only thing one can take from the abridged report is another giant question mark over the role of auditors.
If it is that easy to manufacture profits using inter-company loans and off-balance-sheet vehicles, enter into undetected related-party transactions and hide a lack of cash flow from their scrutiny, what is that scrutiny really worth? As for the report, a case can be made that, given that the fraud touched so many people, its release is in the public interest.
In the short term, our best chance is that someone will just leak it.