Prof Jannie Rossouw’s open letter to Steinhoff directors: do the right thing
In the interest of preserving what little value remains, Steinhoff’s board should resign and a new board should be appointed to mend relations with lenders
I write this open letter in my capacity as a shareholder in Steinhoff. Most of you do not know me and will probably never meet me. I am only a small shareholder when compared with the other companies, pension funds, trusts and individuals invested in the company. I hold my shares through my interest in pension funds, unit trusts, the Satrix 40 and some shares directly in my own name.
Given the media coverage, I assume you are aware of the company’s recent history. Suffice to say Steinhoff has shed R200bn (about 85%) of its market capitalisation in the six weeks since CEO Markus Jooste resigned on December 6 amid undisclosed "accounting irregularities".
As far as I can ascertain, the value destruction at Steinhoff is probably the largest in SA’s corporate history. This affects direct and indirect holders of Steinhoff — including the members of pension funds with Steinhoff shares in their portfolios. It is at this level that the losses become real and aren’t mere numbers on a spreadsheet.
I’m sure you know this, but we cannot keep on accusing government of mismanagement in public entities and elsewhere if we do not have the same expectations of the private sector. That is why we must judge Steinhoff as harshly as we judge corruption and mismanagement in the public sector.
My main concern at Steinhoff is that the very board that was responsible for governance, oversight and the financial statements of the company in the period running up to this destruction of value has not been replaced. I find this unacceptable.
So, I lodge an appeal to the directors of Steinhoff to do the honourable thing: resign.
If I were a bank manager, I would not advance any more money to a company that remains under the stewardship of the current board
Any other board appointed as a replacement cannot do worse. Given the 85% diminishment of the market capitalisation, there is only 15% of value left for any new board to destroy. And, anyway, a new board will instil more investor confidence in the governance and oversight of the company than the current board has done.
In my view, the board is delinquent, as it has completely failed to communicate effectively with shareholders, stakeholders or even the general public. Either it does not understand the importance of communication, or there is more to emerge from Steinhoff.
On the Steinhoff website, I have noticed that the 2016 financial statements (for the 15 months to September 2016) now rightfully say that the "information can no longer be relied on". Did the board not think it would be prudent to write a circular conveying this information to all shareholders?
I have also noticed that on page 179 of the financial statements, the auditor’s report says the board is responsible for the fair presentation of the financial position of the retail company. Now, it seems pretty clear that this duty wasn’t discharged properly.
Yet, for that period, the nonexecutive directors were paid €3.3m. It would seem they didn’t deserve this payment. In my view, those directors should repay their fees. It’s a small amount, considering the R200bn loss, but it’s something for shareholders.
It seems from the scant communication provided that Steinhoff is in talks with its lenders to preserve what value is left. This is exactly my point — it’s the reason a new board is needed: to confidently engage in those negotiations. How can any lenders take the current board seriously?
If I were a bank manager, I would not advance any more money to a company that remains under the stewardship of the current group, which failed to play the supervisory role it was meant to. Only a new board will instil confidence in lenders.
I trust that the board of Steinhoff will respond publicly to this letter in the interest of improved communication with all stakeholders.
• Rossouw is the head of the Wits School of Economics & Business Sciences