If you’re looking for a crash course in executive moral relativism, you might want to spend a few hours watching the recording of Markus Jooste testifying in parliament last week. There is a moment, early on, when Steinhoff’s former CEO is testifying about his anger at the retailer’s auditor, Deloitte, saying it’s not going to sign off the accounts, and that it wants a new forensic investigation into allegations of fraud.
The background is that over the preceding months, Deloitte had been tipped off to "irregularities" within Steinhoff’s accounts. (You know: overstated revenues, forged documents, inflated asset values.)
So Deloitte demands another forensic investigation.
How does Jooste respond? Perhaps to say to Deloitte: "By all means — here are the keys to the office, go wild"?
Well, no. Instead, as he explained: "My personal view was that Deloitte’s mandate should be terminated at that moment in time and we should appoint alternative auditors." That new auditor, he said, would then sign off Steinhoff’s financials.
Jooste’s explanation was that because Deloitte didn’t buy his answers, it had "lost [its] independence". It wasn’t acting in accord with the "real culture of the auditing profession", as he put it.
Presumably, in Jooste’s world, "real auditors" don’t question management’s numbers. It’s a pretty appalling example to any other executives.
Bernard Agulhas, CEO of the Independent Regulatory Board for Auditors (Irba), says that, obviously, a CEO shouldn’t try to fire an auditor simply because he doesn’t like its findings. As Jooste wanted to do.
In any event, says Agulhas, it wouldn’t actually have helped him anyway. "It wouldn’t help to fire an auditor who detected an irregularity, as the outgoing auditor would have to report any problems to the new auditor," he says. That auditor also has a duty to tell the regulator, Irba, about any reportable irregularity.
As it happens, two weeks ago changes were tabled to the Auditing Profession Act to make it harder to fire an auditor who has stumbled on shady goings-on.
Markus Jooste survived because of a built-in tactical advantage — members of parliament are always reluctant to miss lunch
— David Maynier
A new section will be added saying that if an auditor finds an "irregularity", "he or she may not resign or be removed until after he or she has complied" with a few other obligations. Such as discussing this "irregularity" with the company’s board, and detailing exactly what that irregularity is. So auditors can’t just high-tail it when they find something wrong.
This was, of course, just one curious element to Jooste’s testimony. For example, there was much he didn’t reveal about his resignation.
But as a sense of the ethical leaning of Steinhoff’s former CEO, his sentiment on Deloitte was an instructive revelation nonetheless.
Many of the world’s most epic frauds have happened thanks to a decision taken in an instant, where an executive has two options — and his instinct has taken him down the wrong ethical road.
In letters to Harvard Business School professor Eugene Soltes, Ponzi mastermind Bernie Madoff traces his downfall to 1987 when he made just such a call. At the time, the markets fell off a cliff, and his investment strategies began to backfire. "Though I could have admitted failure and returned the money, I knew I would never get another chance with these funds after losing my credibility. In hindsight, this would have been the smart thing to do," says Madoff.
Instead, Madoff began creating his own "investment returns", hoping to make the money back later. Famously, that never happened. As his current address at the Butner federal prison would suggest.
Of course, Jooste never admitted to any misstep. Instead, he stuck to a story he will surely take to court — that it was Deloitte that sank the business, and that it was his joint-venture partner Andreas Seifert who spurred the German authorities into investigating, creating the "perception of accounting irregularities".
There were moments, during the hearing, when Jooste’s thinly veiled contempt for the parliamentarians nearly emerged. As the DA’s David Maynier saw it, Jooste was becoming "more confident and more exhausted", as he ran rings around the MPs.
In the end, the MPs decided to go to lunch, calling the session to an end. As Maynier puts it: "Markus Jooste survived to fight another day because of a built-in tactical advantage — which is that members of parliament are always reluctant to miss lunch."
Jooste will get his chance, of course. It seems inevitable that he will be spending plenty of hours in a witness box over the next few years. But at least now, we have a sense of the character of the man.
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