,
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JAN/FEB 2025
QUESTION 1
Did Steinhoff’s board structure contribute to the scandal?
Published 2 years ago on January 29, 2018, By Forbes Africa
The global retail group Steinhoff is reeling under allegations of accounting fraud. Since the allegations
surfaced last year the CEO of the multi-billion-dollar business, Markus Jooste, has fallen on his sword
and the company’s stock has been hammered, at one point losing about 90% in market value in a few
days.
Observers are calling for harsh punishment, including jail, for the culprits.
Early reports suggest that Steinhoff was involved in massive accounting fraud, including the
overstatement of the company’s financial position.
The company is listed on both the Johannesburg Stock Exchange in South Africa as well as the
Frankfurt Stock Exchange in Germany. With a primary listing in Frankfurt and an Amsterdam
corporate address, Steinhoff follows the Dutch corporate governance code.
Consistent with this code, Steinhoff has a two-tier board structure. This is made up of a management
board (comprised of four top executives) and a supervisory board (comprised of 9 non-executive
directors).
The point of the two-tier board structure is to ensure that the supervisory board is independent from the
executives who sit on the management board. The management board accounts to the supervisory
board, which accounts to the shareholders or to the company.
The two-tier board structure is favored in Western Europe. The US and UK prefer the one-tier or
unitary board – structure, as does South Africa for historical reasons.
It appears that Steinhoff’s decision to opt for the two-tier board structure may have contributed to its
undoing. Natural holes in the structure, the biggest one being the fact that the management board
doesn’t always keep the supervisory board in the loop, combined with Steinhoff’s corporate culture,
which was anchored by a dominant personality, appear to have created accountability holes.
Two-tier versus one-tier structure
There are pros and cons to both systems.
One of the good things about the one-tier board system is that executive directors and non-executives’
directors sit together on a single board. Traditionally there would be two or three executive directors
(the CEO, chief financial officer, and the chief operating officer) sitting alongside most non-executive
directors.
[TURN OVER]
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RSK4802
JAN/FEB 2025
Audit and risk committee.
Steinhoff had three standing committees of the supervisory board – audit and risk, human resources and
remuneration and the nominations committee. The committee structure had two weaknesses.
The first was that too few of its non-executives actually served on the committees only 5 of the 11
supervisory board members. And given that the then chairman Christo Wiese and Claas Daun only sat
on one, it begs the question how only three members of the supervisory board could have been
expected to carry the real responsibility of the standing committees.
The second flaw was that audit and risk were wrapped up in one committee. This is the norm under a
two-tier governance structure.
South Africa’s corporate governance structures might have helped to address both these problems.
King IV stipulates that the risk governance committee should be made up of a mixture of non-
executives and executives (the majority being non-executives). And the governance guidelines warn
against audit and risk being under one committee. Its advice is that a company should only combine
them if it’s able to devote enough time to dealing with risk related issues.
For a company of Steinhoff’s complexity, it seems inconceivable that the audit and risk committee
could have devoted the necessary time to undertake its responsibility.
Conclusion
The Steinhoff case highlights weaknesses in the governance structure the company had chosen to
operate under. That said, the rules have worked perfectly well for thousands of other companies. The
lesson therefore is alert to the warning signs such as dominant directors who don’t heed the rules. They
can pose a grave risk to any company. Written by Owen Skae, Associate Professor and Director of
Rhodes Business School, Rhodes University
Questions
1) Identify six key board structural issues that are sited as possible causes of the problems at
Steinhoff. (6)
2) Identify 2 Key Board subcommittees that are mentioned in the case study and guided by their
roles and duties, discuss how their ineffective contributed to the company’s demise. (14)
(20 marks)
[TURN OVER]
, 3
RSK4802
JAN/FEB 2025
QUESTION 1
Did Steinhoff’s board structure contribute to the scandal?
Published 2 years ago on January 29, 2018, By Forbes Africa
The global retail group Steinhoff is reeling under allegations of accounting fraud. Since the allegations
surfaced last year the CEO of the multi-billion-dollar business, Markus Jooste, has fallen on his sword
and the company’s stock has been hammered, at one point losing about 90% in market value in a few
days.
Observers are calling for harsh punishment, including jail, for the culprits.
Early reports suggest that Steinhoff was involved in massive accounting fraud, including the
overstatement of the company’s financial position.
The company is listed on both the Johannesburg Stock Exchange in South Africa as well as the
Frankfurt Stock Exchange in Germany. With a primary listing in Frankfurt and an Amsterdam
corporate address, Steinhoff follows the Dutch corporate governance code.
Consistent with this code, Steinhoff has a two-tier board structure. This is made up of a management
board (comprised of four top executives) and a supervisory board (comprised of 9 non-executive
directors).
The point of the two-tier board structure is to ensure that the supervisory board is independent from the
executives who sit on the management board. The management board accounts to the supervisory
board, which accounts to the shareholders or to the company.
The two-tier board structure is favored in Western Europe. The US and UK prefer the one-tier or
unitary board – structure, as does South Africa for historical reasons.
It appears that Steinhoff’s decision to opt for the two-tier board structure may have contributed to its
undoing. Natural holes in the structure, the biggest one being the fact that the management board
doesn’t always keep the supervisory board in the loop, combined with Steinhoff’s corporate culture,
which was anchored by a dominant personality, appear to have created accountability holes.
Two-tier versus one-tier structure
There are pros and cons to both systems.
One of the good things about the one-tier board system is that executive directors and non-executives’
directors sit together on a single board. Traditionally there would be two or three executive directors
(the CEO, chief financial officer, and the chief operating officer) sitting alongside most non-executive
directors.
[TURN OVER]
, 5
RSK4802
JAN/FEB 2025
Audit and risk committee.
Steinhoff had three standing committees of the supervisory board – audit and risk, human resources and
remuneration and the nominations committee. The committee structure had two weaknesses.
The first was that too few of its non-executives actually served on the committees only 5 of the 11
supervisory board members. And given that the then chairman Christo Wiese and Claas Daun only sat
on one, it begs the question how only three members of the supervisory board could have been
expected to carry the real responsibility of the standing committees.
The second flaw was that audit and risk were wrapped up in one committee. This is the norm under a
two-tier governance structure.
South Africa’s corporate governance structures might have helped to address both these problems.
King IV stipulates that the risk governance committee should be made up of a mixture of non-
executives and executives (the majority being non-executives). And the governance guidelines warn
against audit and risk being under one committee. Its advice is that a company should only combine
them if it’s able to devote enough time to dealing with risk related issues.
For a company of Steinhoff’s complexity, it seems inconceivable that the audit and risk committee
could have devoted the necessary time to undertake its responsibility.
Conclusion
The Steinhoff case highlights weaknesses in the governance structure the company had chosen to
operate under. That said, the rules have worked perfectly well for thousands of other companies. The
lesson therefore is alert to the warning signs such as dominant directors who don’t heed the rules. They
can pose a grave risk to any company. Written by Owen Skae, Associate Professor and Director of
Rhodes Business School, Rhodes University
Questions
1) Identify six key board structural issues that are sited as possible causes of the problems at
Steinhoff. (6)
2) Identify 2 Key Board subcommittees that are mentioned in the case study and guided by their
roles and duties, discuss how their ineffective contributed to the company’s demise. (14)
(20 marks)
[TURN OVER]
