Capture of the JSE: How was Steinhoff’s corruption missed?
Part of the reason can be traced back to JSE’s 26-years long lack of transformation
AFTER the Johannesburg Stock Exchange (JSE) applauded President Cyril Ramaphosa’s fiscal stimulus for the economy, I could not help but wonder why the JSE had not, 26 years into democracy, attempted any such action as opening up the stock market to black companies.
In part one of “The capture of the JSE” (see IOL, Saturday, June 6), I described that only 2% of companies registered with the JSE are 100% black.
In appreciating Ramaphosa’s effort, the JSE’s group chief executive, Leila Fourie, said: “The JSE still believed that the additional measures in the stimulus package will be useful in enhancing consumer and business confidence through economic and structural mechanisms.”
But there within that lies the responsibility of the JSE.
Part of the reason we have low investor confidence and slow black participation in business is enshrined in the gate-keeping performed by the JSE in the last 26 years.
In 2018 the JSE said it was investigating whether Steinhoff broke disclosure rules after the firm admitted to accounting irregularities that triggered a slide in its shares that wiped more than R200billion off its market capitalisation.
Over two years later, the JSE is still mum on the findings of the investigation.
The former chairperson of Steinhoff, Christo Wiese, said he became aware of problems at Steinhoff three working days before the company’s accounts had to be finalised for a board meeting in December. I don’t want to suggest that Steinhoff got away with murder because it was a white company, but how did the JSE miss such blatant and ominous corruption at the hands of Steinhoff?
Last year, Agri-processing company Tongaat Hulett said it would postpone its return to the JSE until it had released its trading update.
Tongaat had applied for the voluntary suspension of its listing in June, saying it expected to issue the trading guidance in the following months.
Tongaat released long-awaited results for 2019, reporting a headline loss of R923m compared to a restated loss of R947m in 2018. The group said its revenue declined 2% to R17.07bn.
The group said it was considering civil claims against the senior executives fingered in the PricewaterhouseCoopers (PwC) report, which would also involve actions to recover bonuses and benefits paid.
The group also said it would make applications to court for orders declaring relevant people to be delinquent directors or otherwise incapable of occupying fiduciary positions. Again, so far nothing.
Chief executive Gavin Hudson said the group was engaging the JSE to lift the suspension of its share price.
There was clearly something very sinister in Tongaat’s books. But how did the JSE, with “some of the best stock analysts in the world” miss it, again?
In 2017, the Department of Labour revealed that a total of 50 JSE Securities-listed companies, including the JSE itself, have been found to be non-compliant with the Employment Equity (EE) Act.
The JSE was the most hit, with the department finding that the “JSE had showed little or no diligence in promoting employment equity standards”.
A total of 41 employers were issued with the Director-General Recommendations and given 60 days to comply with the recommendations.
A total of nine underwent prosecution for failure to prepare Employment
Equity Plans. Areas of non-compliance included lack of properly constituted consultative forums; employers preparing EE plans that are not informed by a proper audit and analysis; assigned senior EE managers who were actually junior staff, who did not have the necessary authority or resources to execute their mandate.
The Director-General Reviews was part of a legislative requirement in terms of Section 43-45 of the EEA and empowered the labour director-general to conduct reviews to determine the extent to which an employer is complying with the act.
Although Parliament had initially set out to investigate the JSE, the idea was soon a damp squib.
As a South African company, the JSE has failed in its core duty to represent all South Africans, open the market to new players, expose corruption and set goals that transform the economy.
The cover-up of the Steinhoff and Tongaard Hullet’s scandals is evidence of that. The ability to have its shares traded on a stock exchange is central to an organisation’s decision to list.
While the fundamental role of the stock exchange is to bring together in one marketplace providers of capital and organisations that require capital, in South Africa that has not been the case.
Ideally, providers of capital earn a return on their investments through dividends and capital growth, thereby increasing the overall wealth of the nation while the organisations in which they invest provide jobs and drive the economic development of the country.
Here, only 2% of companies registered with the stock exchange are 100% black and hundreds of billions are wiped away at Steinhoff’s precipitous fall and the JSE isn’t moved.
Sibiya holds a PhD from the Durban University of Technology. He is chairperson of Insika Economic Movement.