Steinhoff board must also quit, say business leaders

Steinhoff International’s share price closed on Friday almost 90% down from where it opened just a week earlier on December 1.

It was quoted at R6 per share, which is an awfully long way from the R95 per share it traded at between April and June last year.

Investors are understandably asking a lot of questions about who is responsible for this massive value destruction. In a letter to staff written last week, former CEO Markus Jooste appeared to try to take individual responsibility but for many shareholders and observers, this is not enough.

In a note to its clients on Thursday, Benguela Global Fund Managers made it clear that it did not believe Jooste acted in a vacuum. “While Markus Jooste has resigned and [is] made to look like the only person involved in the socalled ‘mistakes’, we find it to be unbelievable that the board, and particularly the chairman, didn’t know a thing about them [the irregularities] either,” Benguela noted.

“Our position is that the whole board is tainted either for complicity or incompetence and should accordingly be forced to resign. We thus currently no longer view the stock as investable, even if the potential for upside could be significant, it is the potential downside to zero that is becoming more real.”

Business Unity South Africa (Busa) also made it clear that the board as a whole cannot escape responsibility. “Shareholders and the individuals who serve in boards of directors need to bear the responsibility of ensuring that executives maintain the highest ethical standards and accountability,” Busa CEO Tanya Cohen said.

Parmi Natesan, senior governance specialist at the Institute of Directors Southern Africa, points out that in law, all company directors have fiduciary responsibilities as individuals. She said they must act in good faith towards the company … and have a duty of care, skill and diligence.

“Apart from directors’ duties in terms of the law, we also have King IV, which is the governance code for South Africa,” Natesan said. “And King IV is very clear that the board as a collective has a responsibility.”

She points out that the King IV codes puts the responsibility for ensuring compliance with laws and standards, such as accounting standards, squarely with the board. “Whilst the board is not operationally involved and wouldn’t see every contract that is signed and every accounting entry that is made, it’s still the board’s responsibility to ensure that they are correct,” Natesan argued.

If there are material financial irregularities, one has to question how the board audit committee could have allowed them to occur. “The audit committee is supposed to be an independent body, elected by the shareholders, largely because we want the shareholders to have confidence in the financial reporting coming out of the organisation,” she said.

“This means boards must establish the integrity of the information they receive by having it scrutinised at a number of levels. If there were material financial irregularities, how did nobody pick them up in the whole cycle between the CFO, the board, the audit committee, the internal auditors and external auditors?”

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