It took Steinhoff's board of blue blood business people four months to respond to a red flag. In August, reports in Germany surfaced, saying high-flying CEO Markus Jooste was being investigated by prosecutors for accounting fraud.
Jooste quit Steinhoff, the world's second-biggest furniture retailer, on Tuesday night in a move that sent shockwaves through the market. The company has commissioned PwC to investigate "accounting irregularities" after Deloitte refused to sign off on its financial statements, prompting the first market jitters.
Steinhoff is listed in Germany, but based in South Africa.
Where have you heard auditors refusing to sign off on financial statements? With Oakbay, that's where. They're now like the Guptas and Oakbay.Magda Wierzycka, CEO of the Sygnia Group
Both Jooste and Steinhoff chairperson Christo Wiese pooh-poohed the reports when they first surfaced. In December 2015, German authorities also searched the company's offices in Westerstede in connection with alleged tax evasion.
"This is big, this isn't some minor tax issue. There is clearly serious accounting fraud involved and Jooste might well be considering his options as far as jail time is concerned," says Magda Wierzycka, CEO of the Sygnia Group and an outspoken critic of unethical business practices.
"Steinhoff has involved itself in some shady dealings which involves accounting irregularities and overstating profits. I believe it is a case of greed overtaking reason... why otherwise would the company's leadership decide to list in a place like Germany, where authorities take this sort of thing very, very seriously? They exposed themselves.
"Where have you heard auditors refusing to sign off on financial statements? With Oakbay, that's where. They're now like the Guptas and Oakbay," says Wierzycka.
She also questions the manner in which Steinhoff acquired 20% of wealth manager PSG in 2012, when the company -- through Wiese -- swapped some of its shares for PSG shares. PSG founder Jannie Mouton was apparently livid when the deal went through. "I have a question: just how did the Stellenbosch guys do it, switching shareholding from one company to the other? From PSG to Steinhoff? So, I wasn't too sorry for them when I heard what had happened," Wierzycka told HuffPost.
Three banking and insurance luminaries also sit on the board: former Sanlam CEO Johan van Zyl and former Absa CEO Steve Booysen.
By Wednesday, Steinhoff's shares had crashed, wiping billions of rands in value from the company. BusinessTech reported that, according to Forbes' real-time tracker, Wiese lost $2.1-billion (R28.3-billion) by 11.40am on Wednesday. This equates to a loss of 54.2% of his total net worth since 5pm EST on Tuesday (midnight local time).
As South Africa's richest man, he will survive.
But investment funds invested in the share took a sharp knock too as all but three of the country's leading funds (in which most pensioners invest) hold Steinhoff in their top 10.
The share is popular because it holds household brands such as Bradlows, Hi-Fi Corporation, Incredible Connection, Timber City, Ackermans and Pep. In addition, it offers exposure to the rest of the 40 top global brands in furniture and retail.
Until Wednesday's bloodbath, Wiese and Jooste were riding high as they sought to create a leading global retail and furniture brand to challenge Ikea's dominance. Steinhoff's international board is a hothouse of talent, raising questions about why it did not react more quickly when Germany's Manager Magazin first revealed that Jooste was being investigated.
Wiese chairs the board. He sits with Len Konar. Konar is a professional director and a man who holds more directorships than any other South African. Audit and risk are his specialities.
Corruption has become acceptable, it has become the way of doing things. Afraid of new regulation or policy? Pay a bribe. Afraid of going through an open tender process? Pay a bribe.Wierzycka
Three banking and insurance luminaries also sit on the board: former Sanlam CEO Johan van Zyl and former Absa CEO Steve Booysen. Theunie Lategan is Absa's vice-chairperson of corporate banking and was previously a long-termer at FNB and FirstRand.
Jayendra Naidoo, Steinhoff's black empowerment partner through his Lancaster Group, is chair of the African subsidiary, STAR, and also sits on the international board.
The former trade unionist is now a long-standing businessman with interests in banking, among other sectors. Heather Sonn is a top-notch South African businesswoman who has worked at Merrill Lynch and holds numerous leadership roles in the private sector.
Two members of the Steinhoff family also sit on the board: founder Bruno Steinhoff and Angela Krüger-Steinhoff, who manages the family's investments.
Sorry that I have disappointed all of you and I never meant to cause any of you any harm.Jooste in his letter to colleagues
The markets treated the share as if the company was going insolvent as panic filled the information gap left by the company's terse statement and what many believe is poor crisis management.
Wiercyzka believes unethical behaviour and corruption has been normalised over the past 10 years and that it is natural that it would also find its way into the private sector. "Corruption has become acceptable, it has become the way of doing things. Afraid of new regulation or policy? Pay a bribe. Afraid of going through an open tender process? Pay a bribe."
Jooste sent this note* to colleagues at Steinhoff yesterday:
Firstly I would like to apologise for all the bad publicity I caused the Steinhoff company the last couple of months.
Now I have caused the company further damage by not being able to finalise the year end audited numbers and I made some big mistakes and have now caused financial loss to many innocent people.
It is time for me to move on and take the consequences of my behaviour like a man.
Sorry that I have disappointed all of you and I never meant to cause any of you any harm.
Please continue to live the Steinhoff dream and I must make it very clear none of Danie, Ben, Stehan and Mariza had anything to do with any of my mistakes.
I enjoyed working with you and wish you all the best for the future.