Parliament’s initial engagement with Steinhoff International and a battalion of regulators was fascinating. The parliamentarians attempted to inflate their oversight role in what could be the biggest corporate fraud in SA history, and the Steinhoff team and regulators tried even harder to minimise any share of the blame.
Anyone hoping for a decisive outcome from the first day’s proceedings would have been disappointed. After 10 long hours of presentations and muted questioning the only decisive thing to emerge was that nobody in the Old Assembly Chamber that day believed they should be held in any way responsible for what has happened to Steinhoff.
It has to be noted that on the day of the hearing in early February nobody had any idea of the state of play at the group — apart from PwC, which was conducting the investigation into the events leading up to the shocking December 4 announcement, and the supervisory board members, who were presumably being kept abreast of their findings.
This means nobody was really sure what the appropriate level of indignation was to assume. Is the damage limited to the sum initially flagged by the company when it issued the chilling Sens announcement on December 6? That announcement referred to the validity and recoverability of certain non-SA assets that amount to around €6bn. Or is the damage much greater?
There is of course another option: that much of the €6bn will be located and that Steinhoff can get back to business as usual. But it’s difficult to imagine the circumstances under which it could ever again be business as usual for Steinhoff.
The good news for the millions of people whose meagre savings and pensions were exposed to Steinhoff is that parliament holds out a slight hope that the traditional investment-market pattern of socialising losses and privatising profits might be interrupted.
The chilling aspect of the parliamentary hearing was not only that the Steinhoff directors and the regulators believed that they should not be held accountable for what happened at Steinhoff. It was that two major fund management players seemed to think the whole thing wasn’t that serious.
The pensions department of the Financial Services Board (FSB) told the parliamentarians that on December 1 the average pensions fund subject to its oversight had 1.43% of their assets in Steinhoff. In absolute terms the total Steinhoff exposure was R25bn. By December 8 the value of that exposure had dropped to R7bn, equivalent to 0.42% of the funds sampled by the FSB.
The Government Employees Pension Fund (GEPF), which does not fall under the FSB, had R24.1bn invested in Steinhoff on November 30 — equivalent to 1.31% of the GEPF’s total portfolio. By December 31 the figures had dropped to R1.8bn and 0.099% respectively.
This approach was obviously intended to calm fears that Steinhoff’s collapse represented a systemic risk. It was an approach that national treasury and the Reserve Bank had also adopted. Even if every cent of loans and investment was lost it would represent a relatively small percentage of total investments in SA, was the Bank’s message.
The EFF’s Floyd Shivambu was probably not the only parliamentarian unhappy about this well-intended approach. "The regulators are trivialising this loss on the grounds that it’s a small fraction of the total — but it’s billions of rands of losses, [and] the Bank is collaborating in huge financial crimes, [as are] the company, the audit firm and regulators," he said.
What SA citizens should now be hoping is that Shivambu and his fellow MPs, from every party, will cut through the legal niceties and identify who should be held responsible. To do this they may need to take their unique process a step further by calling the private sector fund managers to account for their involvement.
The Public Investment Corp, (PIC) on behalf of the GEPF, appears to have been lured into quiescence by talk of an African retail champion; but what about the likes of Coronation Fund Managers? Why did it not exercise more effective oversight of the billions placed in its care? Between them, the directors, auditors and fund managers created the enabling environment that allowed former group CEO Markus Jooste to wreak untold havoc on shareholder wealth. They allowed Jooste and former chairman Christo Wiese to assume they were exceptional and would continue to "win", no matter what.
What the MPs might help to explain to the voting public is how it could be that all those responsible for this wealth destruction, in particular the directors, auditors and fund managers, are so extremely well paid. They are so well paid that the money that is left over for the ultimate beneficial shareholders — the voting public, which invests through funds — is minimal, even when value is being created.
Parliament would do the SA economy a huge favour if it were able to recalibrate the risk-reward profile in line with that of an efficient investment market rather than the sclerotic one we have.
It shouldn’t always be the case that when it comes to investing, the public carries the bulk of the risk while directors and fund managers walk away with the bulk of the returns. The worst-case scenario for them is clipped bonuses.
In August 2014 Coronation apologised to investors in African Bank Investments when the bank was forced into curatorship. "This has been a humbling experience for us. We do not like to make mistakes," said the fund manager, which held 22% of Abil days before its collapse.
It talked of the experience being a "sobering lesson".
So much for sobering lessons. Perhaps Coronation suffers from the same sense of "exceptionalism" that prevented Jooste, Wiese and Abil’s Leon Kirkinis from believing they could ever lose or get caught
As for the Steinhoff board, there was no danger of a restraining hand there. For five years up to 2015, when its primary listing was transferred to Frankfurt, Steinhoff’s corporate governance report included a brief note on why its long-serving directors Len Konar, Jannie Mouton and Claas Daun "remain independent in character and judgment". Each year the board said it had "critically assessed and carefully considered" the issue. Each year it came up with the same answer: that there were no relationships or circumstances likely to affect their judgment or independence of character.
And then there’s the auditor. Deloitte’s will be hard pressed to explain why pages of financial statements it signed off on are now emblazoned with the words "Information can no longer be relied on".
We should all welcome an inflated oversight role for parliament this matter.
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