Corporate Governance Failure: A Case Study of Steinhoff Saga

Running head: CASE STUDY ANANLYSIS
Business Law
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Author Note

1CASE STUDY ANANLYSIS
Introduction
In this essay, one of the biggest cases of corporate fraud in South Africa, known as the
Steinhoff saga has been discussed along with its critical assessment (Naudé et al.,2018). The case
will be analyzed on the basis of four pillars of corporate governance which are as follows:
1. The regulatory framework of corporate governance of Steinhoff.
2. The Role of the Board of Directors.
3. The ethics and leadership behind corporate governance
4. Good corporate citizenship lesson learnt from the case study.
The aim of this case study is to analyze the poor corporate governance strategies adopted
by Steinhoff that had lead the institutional investors, business personalities as well as the
ordinary people to suffer from a significant economic loss. The aim of this case study is to derive
business lessons from the mistakes made by the Steinhoff in 2018. The Steinhoff saga is one of
the biggest corporate scams that South African business history has seen and it had caused a
sharp drop of the company’s share price in December 2017.
Discussion
Steinhoff was established in the year 1964 by Bruno Steinhoff in Germany. Bruno
Steinhoff brought furniture from European countries and sold them in Europe. In the year of
1997, he acquired around 35% of shares of a South African company named Gommagomma.
Then the company transferred its head office to South Africa in1998. In the year of 2005,
Steinhoff invested around 86 million pounds and took over Homestyle Group of UK. In 2011,
he spent around 1.2 billion dollar for the acquisition of Europe’s second largest retailer named

2CASE STUDY ANANLYSIS
Conforama. In 2015 December, Steinhoff International shifted its listing to the Frankfurt Stock
Exchange along with founding a company in Amsterdam, while the management of the company
was based in South Africa. In the same year, Steinhoff included Pepkor for $5.7 billion, a low
end South African retail investment holding company as a member of Steinhoff group. In 2016,
Steinhoff took-over Poundland for 610 million pounds, another retail chain of UK (BBC News
2019). Later in the same year, the company announced to purchase an American Mattress firm
after which the firm announced bankruptcy in October (Fortune 2019). Marcus Jooste, the CEO
of Steinhoff resigned after the company’s auditors did not sign on the audited financial reports
for there was certain accounting irregularities (Businesstech.co.za 2019). There are serious
allegations in context to fraudulent which are being investigated in Frankfurt under the German
official authorities. On Marcus Jooste's resignation the share price of the company fell down
drastically. After this episode a loan of 1.9 billion dollars were granted to Steinhoff by a number
of financial investors like Japanese Bank Nomura and few other U.S. financial institutions. The
Standing Committee on Finance of the Parliament of the Republic of South Africa along with
regulatory bodies, financial service board and the South African Reserve Bank started
investigation against Steinhoff (CNBC Africa 2019).
In the first section, the regulatory framework of Steinhoff's business model in respect of
corporate governance is analyzed. Corporate governance means the set of rules, regulations and
practices by which a corporate firm is administered, controlled and managed (McCahery, Sautner
and Starks, 2016). The skeleton of successful corporate governance comprises of accountability,
assurance, transparency, fairness, leadership, control and management of the stakeholders. The
aim of efficient corporate governance is the need of driving the company towards a better future
along with proper control. The tug-of-war between the performance and the moving provides the

3CASE STUDY ANANLYSIS
guidelines to analyze the governance system of a corporate. Apparently, like any other
scandalous enterprise, Steinhoff appeared to have complied with all the legal as well as with the
enlisted requirements in its various sections. This has created a sense of false reliability and
safety among the investors as well as the stakeholders. From the documents of the corporation
and its practice, a serious distinction is found. There lie discrepancies between facts and practice.
The second section of the case study would analyse the role of board of directors of the
company who seem to have failed to govern the company that is resulted to the massive financial
loss globally. Several areas like the structural issues of the board are the problems of the
composition of the board will be assessed, along with the fact that whether the board was
hoodwinked by a corrupt CEO (CNBC Africa 2019). In this part, the board structure of the
Scheinhoff Company is analyzed along with the role of Board of Directors. Mainly, the unitary
model and the two-tier model are the two types of board structures of a company (Block and
Gerstner, 2016). The Scheinhoff board structure is basically a two tier board system consisting of
management board (having 4 top executives) and a supervisory board (having 9 non-executive
directors). The main drawback of this type of board is the discrepancy and asymmetry between
both the boards. In other words, management board bears a lot of knowledge of business more
than the supervisory board. This may lead to challenges in operation that grows between the two
boards until it’s very late. The advantage of two tier system is that it ensures that the supervisory
board need not required to depend on the executives sitting on the board of management for
working (Dienes, and Velte,2016). The management board reports to the supervisory board that
again reports to the stakeholders or to the company. Though Steinhoff Corporation opts for two
tier model for better administration but natural holes are formed in its structure, the largest being
that the management board does not keep in touch with supervisory board. On the other hand, it