JSE puts uncle in the furniture business on the spot

BELEAGUERED retailer JD Group will have to explain to the JSE why it broke the exchange’s listings rules by ditching a number of independent directors.

The group, which owns consumer brands such as Joshua Doore and Incredible Connection, has made a number of surprising corporate governance moves that have left the company without any of the JSE-required board committees and only one independent director.

This significantly prejudices the interests of the smaller minority shareholders, and contravenes the JSE’s listing rules, at a time when overstretched shoppers are defaulting on loans.

Though the company has courted controversy for years by flouting the King corporate governance code, this trend appears more pronounced now that it is under the thumb of Steinhoff, which is run by racehorse enthusiast Markus Jooste.

Steinhoff holds 86% of JD Group after increasing its stake from 56% in February, when it emerged that JD Group would have to write off a large amount of debt thanks to customers who defaulted on unsecured loans.

The disappearance of the independent directors happened almost by stealth. All but one of JD Group’s independent directors have resigned since the retailer’s AGM in November.

On April 11, JD Group said that from this week, all its board subcommittees would be disbanded.

Instead, the functions of the retailer’s audit, remuneration, and social and ethics committees would become the responsibility of Steinhoff’s committees.

JD Group also revealed that four directors would be resigning, including three independent non-executive directors: Jacques Schindehutte, Nerina Bodasing and Matsobane Matlwa.

The fourth non-executive director to quit was Len Konar, who has been on JD Group boards since 1995, and is chairman of Steinhoff.

This came less than six months after three other independent directors — Maureen Lock, Martin Shaw and Gunter Steffens — - resigned following the AGM.

This leaves JD Group with only one independent director, Vusi Khanyile, which makes it impossible for the group to meet JSE listings requirements.

However, JD Group’s website says that Stephanus Muller is “to be appointed”, and will be classified as an independent director. But even that is debatable, considering that he is on the board of Steinhoff.

The JSE rules say that every company must have an audit committee with three independent directors and a remuneration committee with a majority of independent directors.

However, JD Group’s investor relations head, Ian Nell, said the company was “doing everything according to the requirements of the Companies Act and the JSE”.

This clashes with the views of the JSE.

The JSE’s Andre Visser said that every listed company, regardless of the size of its minority shareholding, is obliged to have its own audit committee and remuneration committee.

“The regulations are very clear. We will be engaging with the company and its sponsor to address this issue,” Visser said.

Shareholder activist Theo Botha said that developments at JD Group since the AGM were disturbing.

Steinhoff holding all the cards and dictating the terms

At that November AGM, Botha asked whether JD Group had made sufficient provision for the mounting bad debts.

However, executive chairman David Sussman assured Botha that the company was “comfortable with the level” of what was set aside to cover bad debts.

But in February, JD Group reported losses for the six months to December, and announced it would need a R1.5-billion rights issue to accommodate increased provisions and write-offs.

The share price at the time had dropped to R25, from R60 three years ago and R101 in 2007.

Steinhoff then offered R27 per share to buy out minority shareholders, which led to its current 86% stake.

“Perhaps Steinhoff is rescuing shareholders,” said Botha. “But there’s no way we can tell — they are holding all the cards, and are dictating the terms.

Botha said that JD Group management had refused to provide details of the increased provisions for bad debt, which left minority shareholders at a considerable disadvantage.

“Only Steinhoff knows how good or bad JD Group is,” he said.