The Steinhoff fraud has increased scrutiny of SA Inc. The question being asked is did no board member, even Christo Wiese, a renowned business mind, realise that the convoluted structures former CEO Markus Jooste was spinning with the company’s global expansion could conceal irregularities? Financial arrangements that are too complicated to evaluate or that you cannot understand as a board member are a red flag.
Following the lessons learnt from the collateralised debt obligation, the financial instruments that were a major factor in the 2007 global financial crisis, one would have thought board members would be more vigilant when confronted with risky and complex structures in any form.
Since the global crisis, there has been a demand for increased regulation and legislation, especially with regard to governance, transparency, sustainability and accountability. However, ethics cannot be legislated. Dishonest individuals will always find ways to subvert rules and laws to line their pockets.
When we assess the Steinhoff accounting irregularities, at face value, it appears that board members were fiscally irresponsible and negligent in their fiduciary duties. Ethics without the courage to stand up for and act in line with one’s belief system, keeps corporate governance in the realm of theory and ideals.
A lack of courage could have resulted in some board members, who may have been uncomfortable with what was being presented to them, not speaking up. If they did, this can only be known through board minutes, which serve as the official and legal record of the discussions of the board. Minutes should record any dissenting views and voting patterns on decisions taken, to support their business judgement in acting in the best interests of the company.
It is possible that some board members did not have the courage to intervene because they did not want to be seen as being distrustful of the motives of the CEO and his practices.
Being a board member is itself a risk. Knowledge, qualifications and experience are important, but board members must have the courage to act timeously. With increased volatility and complexity of the global world and the companies that they lead, board members cannot know everything. Having the humility and courage to ask insightful, stupid questions, especially in front of your colleagues who may be fearful to do the same and who think you or themselves “should” know everything, are critical qualities for board members to possess.
If, as a board member, you ask questions with good intentions to understand, to uncover simplicity and reasoning buried in complexities, it cannot be a dumb question. Everyone benefits. Section 76 of the Companies Act states that the obligations of a director are to satisfy themselves that they have taken reasonably diligent steps to become informed about a matter and have a rational basis for believing that the decision being taken is in the best interests of the company. Failure to properly perform your duties as a board member may render you personally liable.
“I was scared to look stupid so I did not question, even though I found the strategy and structures of the company complicated.” This statement, I would go out on a limb and say, would not be a credible and reasonable defence.
It is crucial to conquer fear, apathy and indifference to be an effective director. A director must be willing to take on sacred cows and respectfully challenge even cult personalities such as Jooste and Wiese if that is what is required to act in the best interests of the company, not just shareholders.
I have challenged the belief that shareholders always take decisions that are good for the company. At times the decisions are blatantly good for their returns, at the expense of the company. Fiduciary duties of directors are owed to the company; they are non-negotiable and cannot be waived. Nowhere in the Companies Act is there a provision for the fiduciary duties to be owed to shareholders. As a matter of fact, directors have an obligation to avoid any conflict of interests with the company.
Good governance is not going to come from enacting more legislation, but from individuals overcoming their fears and acting ethically and with integrity in pursuit of something greater than their own self-interest.
- Msomi is the chief executive officer of Busara Leadership Partners
