Steinhoff matters: Mr Markus Jooste

Meeting report

Mr Carrim welcomed everyone and indicated the legal framework had been covered last week by Parliament’s legal advisor who explained that witnesses are protected from self-incrimination. In terms of section 16 of the Powers and Privileges Act, Mr Jooste must answer factually in connection with matters relating to the inquiry. The evidence given under the oath may not be used against him in any court outside Parliament.

Mr Markus Jooste, former Steinhoff CEO, was duly sworn in.

Mr Godi said Mr Jooste should take his time and relax because what he was about to say was of national significance. He was engaging with Parliament and the nation as the fallout at Steinhoff affected pension fund holders. The underlying intent of the meeting was to get an understanding of what led to the collapse of Steinhoff.

Mr Carrim indicated that Parliament is not a court of law but Committees would want to identify gaps in legislation and what could be done to empower regulators. The Committees wanted to look at Steinhoff’s experience and learn from it- to deter the prospects of it happening again. As agreed with the lawyers, Mr Jooste would give an overview and then Members will ask questions.

Markus Jooste submission
Mr Markus Jooste, in submission, outlined how the Steinhoff group was complex, spread across Europe, Africa and the US with each having a controlling company, board, audit committee and internal and external auditors in 30 jurisdictions subject to laws and accounting regulations, which were not necessarily the same. He spoke about an Austrian businessman Andreas Seifert, who turned out was the wrong person to go into business with and how his termination of the association in March 2015 resulted in various litigations and the investigation by German tax authorities. It was his view that Seifert was attempting to use prosecutors and the press, to obtain information and influence the outcome of the courts. The Steinhoff board appointed two law and accounting firms to investigate and they found nothing. In September, a Deloitte partner in the Netherlands sent him, La Grange, Deloitte SA and Steinhoff Europe’s CFO an email saying information had been received regarding the German tax investigation, and referred to reports of possible accounting irregularities and sought comment and additional audit procedures. Deloitte's proposal for further investigations into accounting irregularities would have a devastating effect on investor confidence, credit lines and the Steinhoff share price. He was against the investigation as the firm had already commissioned investigations, which took two years and found that they had not found evidence to conclude that the accounting of referenced transactions was not in compliance with the IFRS Standards. He was not aware of any accounting irregularities in the books of Steinhoff- referring to Deloitte's report. Accounting irregularities suggests fraud. A new investigation proposed by Deloitte would delay the release of financial results on December 6. As a result he proposed an alternative auditor be recruited and unaudited financial results be released instead. However the board did not side with this decision and the fallout of the Steinhoff share price resulted. The delayed release of financial results, remaining queries about accounting irregularities and a suggestion of a new probe despite previous two-year long independent investigations having taken place impacted confidence and led to the drop in share price. By the time he left, 90% of his time as CEO was dedicated to dealing with reports and concerns and he had had enough. He was not blaming anybody, and wanted to place on record that he was not aware of any accounting irregularity in the books of Steinhoff.

Discussion
Ms T Tobias (ANC) said the narrative by Mr Jooste was not new; and this was disappointing. She asked for an explanation how the search and seizure by German investigators related to the allegation of the overstating of the company’s financial positions. She asked what his mantra was as Steinhoff CEO.

Mr Jooste said he started off at Steinhoff at age 28 and achieving the goal of having a retail footprint all around the world was what drove him. The group had more than 12 000 retail shops around the globe when he left. On the search and seizures, the German tax authorities queried transactions between German subsidiaries and a Swiss company, and transfer pricing was part of the investigations.

Mr D Maynier (DA) noted that Mr Jooste sent an SMS to colleagues after his resignation which made reference to big mistakes, which led to huge financial losses to innocent people. What were the mistakes which were being referred to?  Did Mr Jooste comply with Steinhoff N.V code of conduct during his tenure as CEO? He failed to understand why there appeared to be no contrition, or apology to the thousands which he himself (Mr Jooste) concedes suffered huge financial losses. He cited a quote from an associate of Jooste who labelled the former CEO as a [Expletive] psychopath. What did Mr Jooste have to say about this characterisation?

Mr F Shivambu (EFF) protested the use of an expletive by Mr Maynier. Although a direct quote, such terminology was un-parliamentary.

Mr Carrim asked Mr Maynier to cut the usual melodrama and get straight to questions.

Mr Jooste said the SMS he sent to close colleagues about the ‘big mistakes’ he made referred to the joint venture Steinhoff entered into with the aforementioned European retailer in 2007. He sent the correspondence after he leant that the board had decided to institute an investigation. The joint venture led to drama and fights lasting three years since its termination in 2015. It led to the perception of accounting irregularities, thus leading to Steinhoff not being able to complete financial statements on time. He was not aware of any Steinhoff staff members who deliberately or knowingly contradicted the group’s code of conduct. The code of conduct is applicable to all members of the group. However there were instances of fraud and theft but among lower level employees. He emphasised that he never lied about the activities of the company.
           
Mr Carrim said there was nothing in Mr Jooste’s statement that the Committees, in some form or another, did not know already. Unless he had a strong legal argument to the contrary, Mr Jooste should answer questions from Members more concisely.

Mr A Lees (DA) asked Mr Jooste if he would he agree that once the investigations currently underway were complete, it was unlikely that Steinhoff’s share price would pick up. The demise had an enormous impact on the perceptions about SA- surely Mr Jooste had to feel some obligation to be contrite.

Mr Jooste said it was difficult to speculate about the position of the group after his departure. He could not comment on events which took place after December 4, as he was on his way out from the company. He could not comment on the PwC investigation either until the report is released at the end of the year. This investigation would also inform the recourse that investors will take. He added that investors were well within their rights to take on civil claims. He was saddened by what happened at Steinhoff as he had spent 29 years of his life with company.

Mr T Brauteseth (DA) asked how much capital had Steinhoff moved to foreign subsidiaries and companies since the listing in 2013, and which mechanisms had been used to facilitate the movements of these funds. Did Mr Jooste take any short positions on Steinhoff shares in 2017? Was Dr Wiese’s statement that the collapse came like a bolt from the blue inherently false given what Mr Jooste had outlined? 

Mr Jooste said he had never sold any Steinhoff shares or took any short position during his entire career. He never took money out of the country and had paid tax on all foreign remuneration. He had been part of a team which built Steinhoff for 29 years and grew the group’s employment base from 100 to 130 000, and had hopes that it would grow further. He would make available the chain of email and other forms of communication between himself and other Steinhoff executives before the collapse. He could not be drawn to comment on submissions by other individuals. 

Mr D Macpherson (DA) said the former Steinhoff CFO had directly put the blame on Mr Jooste. With respect to the SMS he sent to colleagues upon tendering his resignation, what ‘behaviour’ was he referring to, and what type of consequences would he deem fit for such behaviour?

Mr Jooste said the consequences were that he was leaving a 29 year long career with the company and the behaviour he was referring to was the choice of a strategic partner, and what happened subsequently.

Mr Shivambu said that the narrative explaining the collapse was changing and the blame was now being shifted to a strategic partner. When did Dr Wiese and Booysen become aware of the challenges at Steinhoff? Who was responsible for the shenanigan? Why was Mr Jooste not forthcoming to appear before the Committees initially? He wanted to know why Parliament had to subpoena Mr Jooste to appear - given that he presented a narrative that he did nothing wrong. Why was he appearing with an ‘army of lawyers’ if he was being truthful? How much money did Mr Jooste lose following the collapse? How much shares did he have at Steinhoff in rand value? He wanted Mr Jooste to explain the nature of Steinhoff's partnership with Seifert, which Jooste has been blaming for Steinhoff's problems. 

Mr M Hlengwa (IFP) asked Mr Jooste to be frank about the exact reasons why he left Steinhoff. Was his departure not an attempt to absolve himself from any form of accountability? The audit function at Steinhoff seemed to be in shambles in all material respects. Was he satisfied by the manner in which the audit function exercised its role? The collapse could not have just happened like a heart attack.

Mr Jooste said given the events following December 4 it was in his interests to get a legal team to assist him in the process. His lawyers advised that he not appear before Parliament on January 31. On the day of the Steinhoff share price fallout, his family trust which has an investment company Mayfair, lost R3 billion. The company held 68 million Steinhoff shares. It was public knowledge that Mayfair made a settlement with banks to avoid a default. The Steinhoff shares were to be used as collateral for the loans. The shares were sold. The investment company has no more Steinhoff shares left. Dr Wiese and head of the audit committee Steve Booysen had prior knowledge of issues Steinhoff was facing in November, and Dr Wiese was closely involved in discussions with Deloitte in November. He and Dr Wiese shared the view, on December 4, that a further investigation which Deloitte called for would be ridiculous and would delay finalisation of the financial statements indefinitely and put the group in dire consequences in terms of cash flow, its position with lenders and investor confidence. He believed, instead, that Deloitte’s mandate should be terminated, alternative auditors appointed, and unaudited results released. He realised the failure by the company to release financial information as expected on December 6 as a result of the auditors refusing to sign off, as well as allegations of any irregularities, would have a disastrous effect; credit lines would have been suspended, investor confidence in the group would be lost and lenders would lose faith. He made it clear that if his suggestions were not in line with the board’s view, he would not stay at the group, hence his December 6 exit.

Mr M Booi (ANC) asked how the money lost would be recovered from Mr Jooste. Should his role in the Steinhoff collapse be forgotten? What had he been doing to help the situation? The impression given was that Mr Jooste had disappeared from the picture. 

Mr Jooste said that Steinhoff cut off all communication with him since his resignation, emphasising his earlier statement that he had not been in contact with the firm since December. Steinhoff ceased at that stage all communication with him. He was informed and understood no one at Steinhoff had to have further communication or discussion with him. He confirmed that he was interviewed by the Financial Services Board and that he and his legal team have been available to assist the Hawks in their investigation. He added that he had no more documents to submit: the day he left Steinhoff he lost his telephone contacts, emails and other records. He was satisfied in his personal opinion that the audit processes were professional.

Ms T Chiloane (ANC) asked who was to blame for the Steinhoff collapse. To what extent did Mr Jooste accept any responsibility for the collapse? What could be the best recourse to investors going forward?

Mr Jooste said he would not be drawn in to blame anyone for Steinhoff's downfall. He did not come to Parliament to blame anybody as he personally believed all the colleagues he worked with worked in the best interest of the company. They gave their lives; it was part of the daily DNA of the business. Everyone was dedicated to grow the business, make it successful and create employment and to enjoy it.

Ms P Nkonyeni (ANC) noted that Mr La Grange had indicated that some information in relation to a buying group might have been concealed from him by Mr Jooste. Was this correct? What advice would he give to any aspiring corporate groups thinking of establishing a company such as Steinhoff?

Mr Jooste said Steinhoff had several buying groups around the world, with some of them being partnerships. The buying groups were audited and were also part of an investigation by a German legal firm. He was cautious to give any advice owing to his failure to pick a credible partner during Steinhoff’s expansion. Steinhoff’s mistake might have been that it grew too fast, too quickly, in too many countries. That was the lesson he had learnt. 

Mr N Nhleko (ANC) asked why it took him almost a decade to realise there might have been a problem with the strategic partnership that Steinhoff had entered into.

Mr Jooste said in 2011, Dr Andreas Steinhoff bought Conforama but Seifert did not have his 50% for the acquisition, which he viewed as a cash-flow problem and not an integrity issue. Then Seifert pushed for the Kika/Leiner acquisition, Kika/Leiner was Seifert's biggest competitor in Austria. This transaction raised red flags, when again it appeared Seifert would not be able to bring his share. This led to a fallout in November 2014. The relationship with Seifert was terminated in January 2015, on legal advice. He pointed out that after that the litigation against Steinhoff commenced, as did the allegations of accounting irregularities. One case is still open in Vienna, over a dispute about a shortfall related to the Conforama acquisition. In a hearing at a court in Vienna it appeared, in retrospect that Seifert had no intentions on paying for any acquisition that was proposed. That was part of the fight and the litigation that was going on at the time. He added that the interim remarks by the judge in Vienna confirmed the feeling Steinhoff had about the matter.

Ms Fubbs asked if he would agree that the decentralised structure of Steinhoff might have facilitated an enabling environment for the mistakes he made.

Mr Jooste reiterated that the biggest strategic mistake was to rope in the wrong partner, which subsequently embroiled the group in litigation and court processes. He also explained that Steinhoff's failure is not due to its multi-lateral structure, but rather his decision to enter into a Joint Venture with Andreas Seifert in 2007. He detailed the strategic partnership with Dr Andreas Seifert, which started when the MoU was signed in 2007. Seifert owned a large mass discount retail chain which operated in Germany and Austria and in also smaller Eastern European companies. At the time Steinhoff had an investment in Poco, in Germany. The two businesses merged through the 50:50 joint venture.  By the time he left, 90% of his time as CEO was dedicated to dealing with reports and concerns.

Mr Carrim said Mr Jooste was coming across as the Mother Theresa of Steinhoff, without showing an inkling of regret or sliver of acknowledgement of the severe gravity of what happened here. If things had been as good as he claims, how come this was the biggest corporate scandal to rock South Africa? Saying nothing incriminates him and reinforces the belief that he had a role to play. Could he not say more without prejudicing himself?

Mr Jooste said the word scandal was the stuff of sensationalism. Steinhoff is the biggest corporate failure in SA, and not the biggest corporate scandal, as suggested. He added that it is saddening that people lost money, but Steinhoff managed to mitigate job losses. He explained that the fall in the share price was due to the delay in the release of the financial statements, which created uncertainty to which markets reacted. He was trying his best to answer the best he could.

Mr Hlengwa said the collapse was a result of private sector corruption and should not be sanitised by referring to it as accounting irregularities. He asked where Mr Jooste would put the blame in his assessment. He still did not believe the reasons given by Jooste were genuine and honest.

Mr Lees asked what Mr Jooste’s position was in hindsight. The identified Mayfair loss was another form of obfuscation as it was not his personal loss but that of the company’s lenders. The fact that he had an impressive legal team indicates his personal wealth had not suffered to a great degree compared to other investors.

Mr Maynier asked Mr Jooste to clearly explain the massive billion rand restatement of the company’s books if he was not aware of any accounting irregularities at Steinhoff. Was it true that Mr Jooste bullied analysts who reached conclusions on Steinhoff which were found unfavourable, and threatened them with legal action? Did he have any knowledge of any off-balance company called Campion Capital?

Mr Jooste said he could not comment why the assets were written off. Steinhoff had met with one analyst from JP Morgan, and that was a long time ago- when Steinhoff was still virtually a South African company. He was not aware and did not believe that he ever bullied said analyst. Campion Capital was a Swiss based company and did business with Steinhoff. He has no personal financial interest in that company.

Mr Carrrim said Committees have no power to determine guilt of any party. This was a parallel process, not the be all and end all, and recognised the complexity of the matter. The aim was to reduce the prospects of such from happening in future. Regulators and the Hawks, needed to do more - and swiftly. Parliament’s job was to hold them to account. The co-chairpersons would meet to map the way forward and revert back to the Committees.

Mr Godi said Parliament has heard three versions of events. One from former Steinhoff Chair Christo Wiese who called the collapse, a bolt from the blue, former CFO Ben La Grange's version which attributes the fall to three baskets of issues and partly that Jooste did not fully share information with him. And finally Mr Jooste's version that the collapse in the share price was attributed to uncertainty because the release of financial statements were delayed. As Parliament we cannot say we have heard you, let it pass. However, Mr Jooste's testimony provided details on the dates, sequence of events and the people involved. The Committees will meet to determine a way forward as there is still a lack of understanding of what happened as the testimonies differ so much that it appears that all three witnesses worked at three different companies.

The meeting was adjourned.