Sugar-coated toxin

Tongaat: the closer new management looks, the murkier things get

Is it possible the King 4 code has become a danger to investors? Like flags on a beach that let swimmers know it’s safe to go into the water only to discover, when in far enough, that sharks are circling. It’s not just the King code, it’s the auditor-backed accounting system and much more.

Tongaat Hulett is the latest in a string of value-destroying listed companies where everything looked calm and enticing, and all the boxes ticked. How much worse off would investors have been if there was no governance code for the executives to hide behind? Would they have been better off? Would they have exercised greater caution? Looked more closely at the accounts?

Tongaat’s now unreliable 2018 annual report indicated everything had been done by the book. It had directors overseeing committees overseeing auditors overseeing assurance agents overseeing accountants overseeing directors. The members of the audit & compliance committee had such a long list of responsibilities to tick off it was difficult to believe they had a life outside Tongaat, let alone were able to hold down full-time jobs elsewhere. Though you have to wonder how they expected to exert the necessary level of oversight if they met only three times a year.

Until mid-2018 it seemed that Tongaat was maintaining an impressive level of governance oversight as it struggled with tough trading conditions. Now, the closer the new CEO looks, the murkier it gets. Each new Sens announcement reveals deeper mistrust in the reality presented up to the day in October 2018 when CEO Peter Staude stepped down.

And, in a chilling echo of Steinhoff

circa January 2018, no-one is prepared to hazard a guess as to the true value of the group’s assets or what is the real source of its profits.

And while Staude may not get the same opportunity former Steinhoff chair Christo Wiese has had to wax indignant, it’s easy to imagine him also asking parliament how he could have been expected to know what was going on when the auditors and a string of experts including bankers and lawyers didn’t.

A chilling aspect of the governance crises that have dogged our corporate landscape for the past 18 months or so is that in no case did a crisis become public because one of the many agents in the long line of King 4 accountability was doing his or her job.

The crisis became public because the company concerned collapsed under the weight of wrongdoing. And yet, the chances of reclaiming the generous payments made to any of these agents — from the auditors to the directors to the governance assurance experts — is slim to nonexistent. Look closely, they are not really accountable. And forget about jail time.

It is difficult to know the precise source of the rot. Certainly the International Financial Reporting Standards system is part of the problem. An accounting system that, in its early days, was deemed an improvement has become distressingly and pointlessly complex. In a bid to be nuanced it allows for too much judgment.

Tongaat’s corporate governance report starts with a now laughable commitment to “the highest standards of ethical and effective governance, resulting in sustainable … performance that creates long-term value”.

Perhaps just enough encouragement to entice hesitant swimmers into its dangerous waters.

Tongaat is the latest in a string of turbulent listed companies where everything looked calm and enticing