RSK4802
FEB/MAR 2025 EXAM QUESTIONS & ANSWERS
FEND TUTORIALS
, 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 fewdays. 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
Amsterdamcorporate 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
managementboard (comprised of four top executives) and a supervisory board
(comprised of 9 non-executivedirectors). 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.
This means that there’s a seamless flow of information between executives and non-
executives. The executives can be asked questions with the entire board present. This
closes any information asymmetry. In addition, it can also facilitate quicker decisions.
On the downside, the unitary board structure has been criticized for its propensity to
compromise the independence of the non-executive directors. This dilutes their
oversight role. For its part the two-tier system seems to have more checks and balances
built into it given that the management board is subject to oversight by the supervisory
board, and the supervisory board has to answer to shareholders. But the two-tier
structure is often criticized for information asymmetry between the management board
FEB/MAR 2025 EXAM QUESTIONS & ANSWERS
FEND TUTORIALS
, 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 fewdays. 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
Amsterdamcorporate 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
managementboard (comprised of four top executives) and a supervisory board
(comprised of 9 non-executivedirectors). 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.
This means that there’s a seamless flow of information between executives and non-
executives. The executives can be asked questions with the entire board present. This
closes any information asymmetry. In addition, it can also facilitate quicker decisions.
On the downside, the unitary board structure has been criticized for its propensity to
compromise the independence of the non-executive directors. This dilutes their
oversight role. For its part the two-tier system seems to have more checks and balances
built into it given that the management board is subject to oversight by the supervisory
board, and the supervisory board has to answer to shareholders. But the two-tier
structure is often criticized for information asymmetry between the management board
