Markus Jooste: ‘A bad story that ended badly’

The death of Steinhoff International supremo Markus Jooste, apparently by his own hand, elicited mainly a cold response from the local investment community.

Large shareholders and close associates did not respond to the FM’s request for reflection on the tragic event. One prominent shareholder activist responded with a curt “No comment”.

However, several market watchers did weigh in, expressing concern that Jooste’s death would again mean no ramifications for any executives — and recalling that mining magnate Brett Kebble, with his assisted suicide, took the secrets of a couple of listed mining enterprises to his grave.

Professional asset managers and ordinary investors burnt by the Steinhoff collapse had probably worked through the pain since the company collapsed in December 2017. What’s really left to say? Jooste’s passing doesn’t change their circumstances, and perhaps the only consideration is that there might now never be proper closure on the complicated Steinhoff matter.

The JSE, on the day, was not in any way affected by Jooste’s death, with Steinhoff having delisted late last year.

But Jooste will haunt the bourse for many decades to come. Former JSE CEO Nicky Newton-King, who dealt with the initial ugly fallout of the Steinhoff scandal, says that when Steinhoff collapsed it completely shook people’s trust in corporate South Africa.

“This ranged from what people trusted in our accounting standards to our regulatory oversight,” she tells the FM. “There was a collective taking in of breath … whew, what is actually going on? We can’t take things for granted. We are going to have to review what we do … double down on things.”

Jooste’s actions prompted urgent reflection. She says that on the whole, there probably was not a single company board that did not ask: “What does this mean for us?”

She adds: “The absolute spider web of companies that Steinhoff had … were audited by different sets of auditors and then consolidated up by big-name auditors.”

Newton-King says it would be a mistake to underestimate the damage that the Steinhoff episode did to the standing of South Africa’s governance environment in listed companies.

Former acquaintances of Jooste’s have also preferred to stay mum. PSG Group, for one, had an association with Jooste until the sudden collapse of Steinhoff: Jooste was once close to PSG founder Jannie Mouton, and Steinhoff was a significant minority shareholder in the now-unlisted investment company. It won’t offer official comment, a source says. “We don’t want to be drawn into something we had nothing to do with.”

As far as asset manager and Merchant West Investment executive director Piet Viljoen is concerned, there’s not much to say. “There is nothing you can say that is good. It was a bad story that ended badly. Though … there are so many loose ends still to tie up.”

For Charles Boles, the founder of Titanium Capital, “it would be interesting to understand where the seeds of this were planted. It very rarely starts with a gigantic fraud or with the intention of one. But just how did the hole grow over time and what was the extent of the fraud required to cover it?”

Still, he adds, it’s easy to vilify somebody — particularly given the staggering scale of the fraud — but for anyone to get to the point where they take their own life is sad.

This serves as a stark reminder of the need for robust corporate governance and a culture of accountability across all levels of leadership

—  Asief Mohamed

Boles believes there are lessons to learn: “Some fund managers — who I would regard as astute — interacted with Jooste. This is not uncommon but it was striking that the people who interacted with him most were the most seduced [and] were the most taken in with the Steinhoff story.

“There is usually value in interacting with management to understand a business better. But there is that age-old question of whether you lose objectivity the more you interact with management.”

For Aeon Investment Management chief investment officer Asief Mohamed, accountability for these lapses is top of mind. “The immense loss of worker retirement savings exposes a critical failing in governance. Despite being overseen by highly qualified boards filled with professors, doctors and chartered accountants, these safeguards demonstrably failed.”

He believes that, as a minimum, these nonexecutive directors should be required to relinquish all fees earned during their tenure to a fund directly benefiting workers who lost their retirement savings.

Additionally, Mohamed argues that fund managers who invested client money in Steinhoff — despite red flags — deserve scrutiny and potential accountability for their oversight. “This serves as a stark reminder of the need for robust corporate governance and a culture of accountability across all levels of leadership, from executive management to boards and investment professionals.”

Drawing the curtain on culpability?

Perhaps the most pertinent response to Jooste’s death is from Craig Butters, a former portfolio manager who was one of the few persistent critics of the Steinhoff business model.

In the FM in December 2017, right after the Steinhoff collapse, Butters remarked that by about 2006 he was convinced the acquisitive group’s great success story was not all it appeared to be. He noted: “Their legacy assets, which they’d bought, were largely rubbish, and in some cases had been acquisitions of struggling clients. And they’d kept desperately issuing shares and raising debt to do these deals.”

At the time, Butters saw how Jooste’s sales pitch diverted radically from Steinhoff’s tangible NAV. “In other words, the real value of the company, when you strip out all the goodwill, which is based on the supposed value of the brands and trademarks for companies they’d bought.”

In his analysis, “issuing shares for companies of little value wasn’t sustainable and … the operating cash flows were not supported by dividends due to the creative use of loans”.

Butters maintained that up to 41% of Steinhoff’s earnings and cash flows were of poor quality due to, among other things, the use of intangible assets and the recognition of interest on loans, which were ultimately swallowed up by the poor-quality businesses.

Speaking to the FM on the weekend, he says he was always confident in his analysis of Steinhoff and the role Jooste played in its demise.

At the same time, he expressed condolences to those close to Jooste. “I am not fully aware of the circumstances surrounding his death, but if this was suicide, then one can surely reflect, not only on the finality of his actions from his perspective, but also the consequences to the public at large,” he says.

“I’m speculating that, if this was suicide, then he thought he could draw the curtain on his culpability and acceptance of responsibility for his actions. Nothing could be further from the truth, however.

“Sadly, his tainted legacy of serious wrongdoings will remain forever, and his suicide, if confirmed, only accentuates this. The burden on his family will linger for a long time. I have had many people message me calling his actions ‘cowardly’. I find it difficult to disagree with this. But aside from a court judgment, perhaps this is the final confirmation of his guilt that we needed.”

Butters does not believe the R475m Financial Sector Conduct Authority fine was the catalyst for Jooste’s actions. “He’s been there before with the JSE and Saica [the South African Institute of Chartered Accountants]. We were all concerned by his confident deflection of any accountability at the parliamentary hearings into Steinhoff’s collapse, the perceived lack of action by the Hawks and the NPA [National Prosecuting Authority], his evasion of the warrant for his arrest issued by a German court, and rumours of regular drinks with two close friends, even recently,” he says.

But he concedes that somehow it seems the noose was tightening and that perhaps the weight of many factors played a role in his decision. “I’m hoping we will be pleasantly surprised by the action taken by the Hawks, but I’m concerned that Jooste’s death will result in their retreat into inaction, and that likely accomplices will not face the music, especially if they had turned state witness.”

Ultimately, Butters holds that the consequence of Jooste’s and any co-conspirators’ actions cannot be swept under the carpet. “Ordinary South African citizens, from the most vulnerable to wealthy citizens, lost millions of rand. It is more than six years since he resigned as CEO of Steinhoff, under a cloud. Steinhoff was a highly complex group with many global operations and entities, but the delay in bringing the culprits to book for its implosion is simply unacceptable.”

He adds that PwC’s forensic investigation into Steinhoff’s collapse was concluded in February 2019 and the 3,000-odd page report was handed to Steinhoff in March 2019. “That was five years ago. Assuming they’ve done their work properly, everything required to convict the wrongdoers should sit squarely in the report. At the very least, those who’ve lost money on Steinhoff should obtain some insights and clarity.”

Butters notes Steinhoff has opposed the successful application by the FM and amaBhungane to the Western Cape High Court to gain access to the PwC report, and has continued with alternative, obstructive avenues.

“I can only call upon Steinhoff executives to stop these Stalingrad tactics and comply with the decision of the Western Cape High Court. Subsequent to Jooste’s death, let’s all just try to be human.”