RSK4802
EXAM PACK
,QUESTION 1
Did Steinhoff’s board structure play a role in the scandal?
Originally published January 29, 2018 (Forbes Africa) | Exam Session: Jan/Feb 2025
The global retailer Steinhoff International has been shaken by allegations of large-
scale accounting fraud. After the claims came to light in the previous year, the then-
CEO Markus Jooste resigned, and the company’s share price plummeted
dramatically—losing nearly 90% of its value within a matter of days.
Calls for severe consequences, including imprisonment for those responsible, quickly
followed. Initial findings suggested that the company had grossly overstated its financial
position.
Steinhoff is listed on both the Johannesburg Stock Exchange (JSE) in South Africa and
the Frankfurt Stock Exchange in Germany, with its primary listing in Frankfurt and
corporate seat in Amsterdam. Consequently, it operates under the Dutch corporate
governance code, which prescribes a two-tier board system.
This governance framework consists of:
A management board (executive directors—four senior managers), and
A supervisory board (nine non-executive directors).
The intention behind the two-tier system is to create independence between executives
and non-executives. The management board answers to the supervisory board, which
in turn is accountable to shareholders.
While widely used in Western Europe, the two-tier system contrasts with the unitary
(one-tier) board model preferred in the US, UK, and South Africa.
,It now seems that Steinhoff’s choice of the two-tier structure may have played a role in
its downfall. Gaps in communication between the management and supervisory boards,
coupled with a culture dominated by strong personalities, created accountability failures.
Two-tier vs. One-tier structures
Both structures have advantages and disadvantages:
Unitary board system (one-tier):
o Executives and non-executives sit together, enabling seamless
information flow.
o Questions can be raised directly to executives during board meetings,
which reduces information gaps and allows for faster decision-making.
o However, critics argue that close proximity between executives and non-
executives may compromise the independence of oversight.
Two-tier board system:
o Provides a built-in oversight mechanism, with the supervisory board
monitoring management.
o However, information asymmetry often arises—executives know more
about the business than the supervisory board, leaving the latter
potentially blind to operational risks until it is too late.
At Steinhoff in 2016, the management board included Markus Jooste (CEO), Ben La
Grange (CFO), and Danie van der Merwe (COO, later acting CEO). As is standard
under the two-tier model, none of them sat on the supervisory board.
Parallels have been drawn between the Steinhoff scandal and the Volkswagen
emissions case, where the two-tier system, combined with a culture of dominant
leadership, was also seen as a contributing factor.
, Governance flaws at Steinhoff
The structure may have granted Jooste excessive autonomy, enabling risky decisions
that nearly destroyed the company. Many observers argued that Steinhoff expanded too
rapidly, supported by heavy borrowing—two red-flag conditions highlighted long ago in
John Argenti’s corporate failure model.
The supervisory board appeared to neglect its oversight role. For example, it failed to
properly interrogate or disclose Steinhoff’s $1 billion related-party transaction. While this
disclosure may not have been legally required, ethical standards demanded
transparency.
Weaknesses were also evident in Steinhoff’s audit and risk committee.
Audit and risk committee
Steinhoff’s supervisory board had three main committees:
1. Audit and Risk
2. Human Resources and Remuneration
3. Nominations
Two major weaknesses were present:
1. Limited participation: Out of 11 supervisory board members, only 5 served on
committees. Chairman Christo Wiese and Claas Daun only sat on one each,
leaving just three members bearing the bulk of committee responsibilities.
Combined audit and risk functions: Under the two-tier structure, audit and risk
oversight were bundled into one committee. While common in Europe, South Africa’s
King IV corporate governance code discourages this practice. King IV recommends
that the risk committee should include both executives and non-
EXAM PACK
,QUESTION 1
Did Steinhoff’s board structure play a role in the scandal?
Originally published January 29, 2018 (Forbes Africa) | Exam Session: Jan/Feb 2025
The global retailer Steinhoff International has been shaken by allegations of large-
scale accounting fraud. After the claims came to light in the previous year, the then-
CEO Markus Jooste resigned, and the company’s share price plummeted
dramatically—losing nearly 90% of its value within a matter of days.
Calls for severe consequences, including imprisonment for those responsible, quickly
followed. Initial findings suggested that the company had grossly overstated its financial
position.
Steinhoff is listed on both the Johannesburg Stock Exchange (JSE) in South Africa and
the Frankfurt Stock Exchange in Germany, with its primary listing in Frankfurt and
corporate seat in Amsterdam. Consequently, it operates under the Dutch corporate
governance code, which prescribes a two-tier board system.
This governance framework consists of:
A management board (executive directors—four senior managers), and
A supervisory board (nine non-executive directors).
The intention behind the two-tier system is to create independence between executives
and non-executives. The management board answers to the supervisory board, which
in turn is accountable to shareholders.
While widely used in Western Europe, the two-tier system contrasts with the unitary
(one-tier) board model preferred in the US, UK, and South Africa.
,It now seems that Steinhoff’s choice of the two-tier structure may have played a role in
its downfall. Gaps in communication between the management and supervisory boards,
coupled with a culture dominated by strong personalities, created accountability failures.
Two-tier vs. One-tier structures
Both structures have advantages and disadvantages:
Unitary board system (one-tier):
o Executives and non-executives sit together, enabling seamless
information flow.
o Questions can be raised directly to executives during board meetings,
which reduces information gaps and allows for faster decision-making.
o However, critics argue that close proximity between executives and non-
executives may compromise the independence of oversight.
Two-tier board system:
o Provides a built-in oversight mechanism, with the supervisory board
monitoring management.
o However, information asymmetry often arises—executives know more
about the business than the supervisory board, leaving the latter
potentially blind to operational risks until it is too late.
At Steinhoff in 2016, the management board included Markus Jooste (CEO), Ben La
Grange (CFO), and Danie van der Merwe (COO, later acting CEO). As is standard
under the two-tier model, none of them sat on the supervisory board.
Parallels have been drawn between the Steinhoff scandal and the Volkswagen
emissions case, where the two-tier system, combined with a culture of dominant
leadership, was also seen as a contributing factor.
, Governance flaws at Steinhoff
The structure may have granted Jooste excessive autonomy, enabling risky decisions
that nearly destroyed the company. Many observers argued that Steinhoff expanded too
rapidly, supported by heavy borrowing—two red-flag conditions highlighted long ago in
John Argenti’s corporate failure model.
The supervisory board appeared to neglect its oversight role. For example, it failed to
properly interrogate or disclose Steinhoff’s $1 billion related-party transaction. While this
disclosure may not have been legally required, ethical standards demanded
transparency.
Weaknesses were also evident in Steinhoff’s audit and risk committee.
Audit and risk committee
Steinhoff’s supervisory board had three main committees:
1. Audit and Risk
2. Human Resources and Remuneration
3. Nominations
Two major weaknesses were present:
1. Limited participation: Out of 11 supervisory board members, only 5 served on
committees. Chairman Christo Wiese and Claas Daun only sat on one each,
leaving just three members bearing the bulk of committee responsibilities.
Combined audit and risk functions: Under the two-tier structure, audit and risk
oversight were bundled into one committee. While common in Europe, South Africa’s
King IV corporate governance code discourages this practice. King IV recommends
that the risk committee should include both executives and non-
