How did Markus Jooste get away with the huge Steinhoff fraud for so long? Part of the answer may lie in the company’s governance structure.
Steinhoff was listed on both the JSE and the Frankfurt Stock Exchange. With a corporate office in Amsterdam, it followed the Dutch governance code. Consistent with this, it had a two-tier board structure: a management board (four top executives) and a supervisory board (nine nonexecutive directors).
The point of the two-tier board structure is to ensure that the supervisory board is independent from the executives. However, as Prof Owen Skae, director of Rhodes Business School, points out, “there are natural holes in the structure, the biggest one being that the management board doesn’t always keep the supervisory board in the loop. That, combined with Steinhoff’s corporate culture, which was anchored by a dominant personality, appears to have created accountability holes.”
Another flaw at Steinhoff, says Skae, “was that audit and risk were wrapped up in one committee”. But King 4 governance guidelines warn strongly against this.
Such structural flaws still don’t explain why questions were not asked much earlier by the Steinhoff board. The lesson: shareholders should beware boards that behave like cheerleaders towards their CEO, especially if any directors have a personal interest in rising profits and share prices.
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