Steinhoff: plus ça change, plus c’est la même chose.

Our model triggered a warning about Eskom in 2006 as the data record started to become non-stationary. At Steinhoff our model triggers an alert in 2014 as the company becomes hyper stationary.

Steinhoff International registered on the South African stock exchange in 1998 and very quickly became the largest furniture manufacturing and sourcing company in the country. By 2013 it had been transformed into a global retail giant, boasting a fully integrated supply chain covering sourcing, manufacturing, distribution, logistics and retail.

Then in December 2017, Markus Jooste resigned as CEO on the back of delayed financial statements and rumours of fraud. The same day the share price fell by 66% and ultimately lost 90% of its value, costing shareholders roughly R200 billion.

The subsequent PwC investigation into what happened, published in 2019, found, inter alia, that:  “a small group of Steinhoff Group former executives and other non-Steinhoff executives, led by a senior management executive, structured and implemented various transactions over a number of years which had the result of substantially inflating the profit and asset values of the Steinhoff Group over an extended period” (PwC, p.3).

Incredibly, we can see the closing of the organisation’s leadership onto itself by modelling organisational trends.

This is a preliminary analysis, based on data available in the public domain. It shows that despite changes in the senior executive team in the early 2000s – people leaving and joining – these changes serve only to reinforce the insularity of the leadership in terms of race, gender and ethnicity.

The decline of Afrikaans-speaking men as a proportion of all Non-Executive directors reflects the movement of members of the Steinhoff family moving out of Executive positions into Non-Executive ones.

For the longest of time, Steinhoff’s leadership consists of Markus Jooste (CEO), Piet Ferreira, Jo Grove, Frikkie Nel and Danie van der Merwe. They control the key positions year in and year out.

From 2009, the period when acute fraud begins, the board settles at 8 members and its composition does not change, comprising the five people already mentioned, as well as Johan Stephanus du Plessis, Stehan Grobler and Ian Topping. There a few moments when the executive committee takes on new members. It happens in 2006 (3 people), 2009 (1 person), 2010 (1 person) and 2011 (2 people). As we have already shown, each of these occasions is used to consolidate the insular social base of the leadership.

In what was sometimes reported as a gesture of opening and diversification Heather Sonn joins the Non-Exec Committee in 2014. The dip in the yellow line representing whites reflects her entry.  Christo Wiese joins in 2015. Yet, Heather Sonn is the daughter of Franklin Sonn who joined the company as a non-executive director in 2002. Christo Wiese was Jooste’s former employer, when he worked for one of his company’s in the early 1980s. In other words, rather than opening up and diversifying these changes mark the tunnelling down into a small, intimate network of people with very strong bonds of language and ethnicity. This small circle of people also staffed the various committees intended to be a check and balance to the executive.

The Stationarity of Steinhoff is surprising given that in South Africa during this period, companies were under acute pressure to transform and diversify. The stationarity of the Steinhoff leadership is thus a paradox and our model would have triggered an alert when in 2014 an opportunity to diversify was met with more of the same.

Ultimately, the insularity of the leadership and the deep bonds of trust and friendship that existed between members, created an environment open to abuse.

Predictiveness of the Model.

In both cases, modelling that stationarity of Eskom and of Steinhoff suggested anomalies well before chronic and systemic failure occurred in either organisation.

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