Every financial director who read the JSE’s censure of Steinhoff’s former finance boss Ben la Grange last week would have had shivers running down their spine. But for their good fortune in avoiding a lying, narcissistic boss, it could have been their name in the headlines.
The JSE ruling laid bare how La Grange had been duped by Steinhoff’s former CEO Markus Jooste into approving a mammoth invoice, artificially juicing the retailer’s profit. It’s a critical development since it’s the first time the JSE has overtly pinned anything on Jooste — and, at R376m, it’s a whopper.
This tale is a doozy of corporate fraud, deserving of a business school case study.
The story is that on a flight back to SA from Europe in November 2016, Jooste handed La Grange a handwritten invoice, supposedly showing that Steinhoff would get €23m (R376m at the time) as a rebate from a “buying group” in Europe known as the TG Group.
Put that through, would you, Jooste told him.
La Grange, who’d joined Steinhoff as a wide-eyed 29-year-old tax manager in 2003 and was appointed CFO a decade later, duly sent it to the accounts department. Money was transferred between the retailer’s various bank accounts “to create the impression that the contributions were actually paid to Steinhoff” by the mysterious TG Group.
It did the trick: Deloitte, Steinhoff’s auditor, looked at the cash flows and signed the accounts for the year to September 2016.
It was all a masterful fabrication. Jooste had spun a yarn about how he’d meet Chinese suppliers, and there’d be “blood on the floor” after all-night negotiations over rebates — of which the €23m was Steinhoff’s latest share.
Only, this “buying group” didn’t exist, and the TG Group hadn’t paid a cent. Yet the convenient appearance of a €23m windfall allowed Steinhoff’s rebate arm — called Steinhoff at Work — to turn a R329.1m loss into a R47.5m profit.
As the JSE put it: “There was no actual transaction nor any legitimate commercial reason that supported the information or calculations contained in the handwritten document.”
This was a company where due diligence was seen as a sign of weakness, and trust was turned into a fetish
If you’re wondering how Steinhoff clocked up €6.5bn (R106bn) in “fictitious or irregular” income between 2009 and 2017, look no further than this template.
La Grange will count himself unlucky to have been the unwitting instrument of this deception. Especially since the JSE has now hit him with a R2m fine and a prohibition on being a director of a listed company for 10 years.
But if you understand Steinhoff, you’ll know exactly how this happened. This was a company where due diligence was seen as a sign of weakness, and the fetishisation of trust was akin to what you’d expect to see in the mafia.
Back in 2013, Steinhoff’s former acting CEO Danie van der Merwe gushed about how he sold his family business to Jooste based on a handshake. “I still don’t have a signed document as I sit here. That is how we trusted each other.”
At the time, an accountant said the culture “consists of people who trust each other blind ... we think alike, we operate alike, we respect alike, and we like alike”.
The stories from Steinhoff’s early days — preserved in self-congratulatory corporate videos — were of an inner circle for whom the lack of paperwork was a point of pride.
In one such video, Jooste spoke dismissively of how “wanting a due diligence and big books by auditors and big reports” was “to basically cover your arse”.
It was a company where the CEO held all the cards. Often, when analysts would ask for specific details, executives would reply: “Ask Markus.”
This was the world La Grange stepped into. And, 13 years younger than Jooste, he was often overly deferential to his boss, seemingly reluctant to challenge the man who’d hired him.
So, as much as you can understand why it happened, the JSE ruling — which says La Grange should have applied more scrutiny and done more to verify that invoice — wasn’t wrong.
La Grange could have asked Jooste to show him the contract with the TG Group (though, no doubt, one could magically have been produced), and he could have asked to meet the Chinese suppliers supposedly dishing out mega-rebates.
But then, you could say the same of Steinhoff’s board. When a number popped into the accounts that suddenly took one division from a R329m loss to a R47m profit, backed only by Jooste’s wishy-washy tales of mysterious foreign suppliers nobody had ever met, how come no-one else asked questions either?
As a former Steinhoff executive told the FM this week: “You can’t be a CFO and insist on checking everything the CEO tells you. There has to be trust. But there’s no question that you should do more when you see a number that’s so huge.”
Still, in one respect this ruling is tremendously helpful for La Grange. This is because it confirms the view of insiders that he wasn’t part of the scam, allegedly masterminded by Jooste.
This is implied in the JSE’s language, which accepts that “he was not aware that the income was false at the time, [even though he] did not apply more scrutiny to evaluate the transaction”.
The question is, why has the JSE not held Jooste to account yet?
Asked about this, the JSE’s director of issuer regulation Andre Visser says: “We are still looking into the conduct of other individuals, but we want to wrap this up as quickly as possible — that’s all we can say right now.”
Jooste, you can be sure, won’t be offering his “constructive and unwavering co-operation” as La Grange did. But then he’s got way more to lose.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.