Parliament questions Steinhoff

The Parliamentary Standing Committee on Finance, Standing Committee on Public Services Accounts and Portfolio Committee on Public Enterprises held a joint meeting with Steinhoff International Holdings Netherlands (hereafter Steinhoff) executive team and other affected stakeholders on 31 January 2018. 

The Honourable Chairperson Yunus Carrim, MP, pointed out that the meeting was no more than an initial briefing that will provide the basis for the Committees to develop an overall strategy and programme to exercise its oversight responsibilities in respect of the regulators and other bodies investigating Steinhoff, as well as Steinhoff. 

The Public Investment Corporation (PIC) is a public asset management firm entirely owned by the South African government, with the Minister of Finance as the sole shareholder representative of government.  The PIC is therefore an organ of state which holds an 8% share in Steinhoff.

In pursuance to its oversight function over organs of state, the joint committee invited Steinhoff and regulators to brief it on what happened and current investigations.  The joint committee respects that there is forensic investigation presently underway.

Steinhoff presented to the joint committee that in early December 2017, its auditors advised that they were not in a position to sign off its consolidated 2017 financial statements.  The announcement of this postponement, the establishment of an independent investigation by Pricewaterhouse Coopers Inc (PwC) into reported financial irregularities coupled with the abrupt resignation of its CEO, Markus Jooste, caused the share price of Steinhoff to plummet by nearly 85%. 

Steinhoff emphasised that as the PwC forensic investigation is ongoing, they are not in a position to answer certain questions or make certain statements.  It is only after the completion of the investigation that material facts as to whether the crisis could have been prevented, can be disclosed. 

Steinhoff did however disclose that the chairman of its auditing committee, Dr Steve Booysen, reported transgressions to the authorities in terms of the Prevention and Combating of Corrupt Practices Act, 2004.  This includes reporting former CEO, Markus Joost to the HAWKS. 

Former Steinhoff chairman and major shareholder, Dr Christo Wiese pointed out that he only became aware of the “debacle” three days before its board meeting.  On the day of the board meeting, he and the executive team had hoped to ascertain what has gone wrong from the former CEO, however he never pitched and instead sent him a message that he resigned.  He himself has lost a significant amount due to the decrease in share price.

The questions from the joint committee Members of Parliament (MPs) ranged from whether in terms of Steinhoff’s fiduciary duties to look after assets, it had proper oversight mechanisms in place?  Were there other accomplices?  How is it possible that Steinhoff’s audit committee was not aware of any irregularities sooner?  Can Steinhoff be recovered?

Steinhoff responded that it is not possible to respond to questions as the investigation is ongoing but suffice to say that its audit committee are picking up irregularities from three years ago. 

Dr Wiese responded that he was not in a position to respond on whether Steinhoff could be recovered.  He advised the joint committee that there are reports publicly available assessing Steinhoff’s sustainability that the joint committee could consider.

The joint committee noted that Dr Wiese became aware three days before its board meeting of the “debacle”.  However, questioned when the chairman of the audit committee became aware?  Steinhoff CEO, advised the chairman not to respond to this question until having obtained legal advice from its legal representative.  This response intensified MPs who insisted that the chairman respond immediately.  The chairman explained that there was a report of an irregularity in August 2017 in a German magazine.  This was confirmed on 5 December 2017.

The Johannesburg Stock Exchange (JSE) informed the joint committee that it decided not to suspend Steinhoff from trading its share as it wanted to wait on the forensic investigation outcome.  This also gave the individual shareholders an opportunity to trade out of Steinhoff if it wished to do so. 

Steinhoff’s primary regulator in respect of its listings is Frankfurt Stock Exchange.  The JSE is Steinhoff’s secondary regulator and has launched two investigations to determine whether there have been any breaches in JSE Listing Requirements.  However, these investigations can only be completed after Steinhoff publishes its 2017 annual financial statements.  The JSE also highlighted that it is not impossible for CEO’s to hide financial irregularities from boards.  There are many instances internationally where this has happened, such as Enron Corp, Waste Management Inc, etc. 

National Treasury informed the joint committee that Steinhoff is too complex in its structure which made it difficult to understand.  It cautioned the joint committee to be careful of asking questions that may prejudice the outcome of the forensic investigation.

The South African Reserve Bank highlighted that its role is to implement exchange control and ensure financial stability in the economy.  It concluded that the collapse of Steinhoff did not pose a threat to South Africa’s financial stability.

The Financial Services Board informed the joint committee that it is presently investigating three market abuse cases in the Steinhoff matter, namely:  two cases of possible insider trading in terms of the Financial Markets Act, 2012 and one case of possible false, misleading and deceptive statements.

The PIC presented that it has requested that Dr Wiese step down.  It has also requested representation on the Steinhoff board committee tasked with the investigation in order to ensure transparency.

Honourable Carrim, MP, concluded that the joint committee “feels that far more needs to be done, far more decisively, far more swiftly.  People in our country are fast reaching their tipping point on corruption.  Both the relevant statutory bodies and parliament need to intensify our work in this regard.  We owe it to the public.”

The joint committee meeting created an opportunity for stakeholders affected and involved in the Steinhoff investigations to have sight of what each stakeholder is doing, how it is affected and what measures have been taken to prevent such an incidence from occurring again.  More importantly, the joint committee meeting was open to the public which not only enhanced transparency but gave the public access to Steinhoff executive team and regulators conducting investigations. 

The various committees involved will now consider the information received in planning how to deal with the Steinhoff crises.

Zelna Jansen

CEO, Zelna Jansen Consultancy