A local asset manager has taken a vocal stance on the allegations of financial irregularities at Steinhoff. Benguela Global Fund Managers has written to chairman Christo Wiese, requesting that he and the entire supervisory board step down.
In the letter to Wiese Benguela’s chief investment officer, Zwelakhe Mnguni, says that the issues Steinhoff is facing should have been detected sooner and potentially even avoided if there had been effective oversight.
“At the core of this massive value destruction lies a broken corporate governance structure that has failed to hold the executive accountable and to protect shareholders,” Mnguni wrote. “Dr Wiese, we don’t think that with the information available in the public domain anyone could suggest that you were aware of everything that went on or that you were complicit in what appears to be criminal acts that Markus Jooste himself has described as ‘big mistakes’…. However, we hereby make the case that the board, as the custodians of the company’s assets, should have taken steps to thoroughly investigate the allegations of accounting and tax impropriety as soon as they came to light.”
Mnguni pointed out that only in August Wiese had argued in a radio interview that the allegations of accounting and tax issues published by Manager Magazin were “drivel” and “devoid of any truth”. Yet just a few weeks later the board acknowledged that there were indeed potential financial irregularities.
He also asked Wiese to clarify how the board could have decided that it would be appropriate for Steinhoff to release unaudited financial results. The intention to do this was communicated through Sens on December 4, but it was later decided to delay their release until further investigations had been completed.
“How did the board arrive at the conclusion that it is okay to release the financial statements for the full year without the auditor’s opinion and not foresee that this would spook shareholders already alarmed by allegations of accounting fraud and tax investigations?” Mnguni asked. “Did the board intentionally withhold market-sensitive information about disagreements with the auditors until the last minute – why not announce the delays in October or November 2017?”
Mnguni also raised the fact that on December 6 the board advised shareholders that new information had come to light relating to accounting irregularities that require further investigation. This was the same announcement in which the market was told that Jooste had resigned.
“Is it possible that some of these irregularities were those whose existence was denied in the September 18 Sens announcement?” Mnguni said. “Shouldn’t the allegations of irregularities have led the board to promptly appoint an independent third party to investigate immediately on September 18 as opposed to an exceptionally late reaction after the fact? Does this on its own not indicate the lack of independence, to question and hold the executive to account, in the board?”
He points out that it appears that while the board was aware of investigations by German authorities into Steinhoff since 2015, it had until now elected to dismiss claims of accounting irregularities out of hand.
“Given such enormous value destruction as a direct result of the board’s dereliction of its oversight duty and responsibility, I hereby call upon you and the entire board of directors of Steinhoff International to step down immediately,” wrote Mnguni.
He added that Benguela had written to Wiese on a number of occasions before asking him to address governance issues on both the Steinhoff and Shoprite boards, but his responses were “underwhelming and in fact contemptuous”.
“Now that the self-same governance issues that we previously raised directly with you, Dr Wiese, have caused minorities so much hardship, it would certainly be appropriate for you to resign as chairman and a director of the board,” Mnguni argued. “This is the biggest public scandal in the history of South Africa. Please preserve your legacy as an astute businessman, do the honourable thing and step down.”
In a separate press release, Mnguni also contended that investment managers and regulators should work together to seek “justice for clients” who had been affected by the enormous loss of value in Steinhoff securities.
“Corporate governance is not negotiable irrespective of whether it’s in the public or private sector,” said Mnguni. “We’ve had too many corporate financial scandals since 1994 without any legal consequences to the perpetrators of these financial crimes. Most recently we noted that there have been no criminal prosecutions in respect of the collapse of African Bank which also cost investors substantial financial losses. If the investment management industry and regulators don’t step up the pressure in the Steinhoff case, the precedent set by the African Bank could become entrenched and thus do irreparable damage to South Africa’s ability to attract the desperately needed investment capital in future.”
He argued that this should not be allowed to happen.
“As Benguela we feel that the time has come for the investment management industry to abandon a diplomatic approach to corporate scandals but stand together to safeguard the hard-earned assets of our clients.”