In some respects, Steinhoff and Naspers are very different companies. The one sells mattresses and takkies, the other sells software and television shows.
In one critically important respect, however, they are exactly the same — complex enough to preclude understanding.
Now that a nuclear bomb has been detonated inside Steinhoff, we are suddenly hearing a lot about the off-balance-sheet vehicles it used, about the series of increasingly exotically structured acquisitions, about the tangled structures and the convoluted paths that money follows within the group.
Words such as “confusing” and “opaque” are popping up a lot.
The same kind of language has long been associated with Naspers, which has a corporate structure so baroque that it controls itself in part, and is in part controlled by companies that own each other.
The leaders of these two companies had a nasty habit of implying that critics of their unusual features are simply not smart enough to grasp this necessary complexity. These, we were told, are very smart businesses run by very smart people, and we are the great unwashed who must take them at their word.
That is not a sign of fraud, of course. At the level of top management, South African business, like business everywhere, is heavy with psychopaths and egomaniacs. On average, you don’t become a chief executive without believing that you are smarter than everyone else and, once you get to be a chief executive, you are surrounded by bootlickers who work in relay teams to assure you of just how smart you are.
By the time you have been around as long as, say, Koos Bekker, chances are you believe your own legend at least a little.
But we now know that there were what Steinhoff euphemistically calls “accounting irregularities” on its books. If we give the company a totally undue benefit of the doubt, then perhaps its complexity was not put in place intentionally to deceive — it was just used to deceive once it was in place, to cover up the rot for years.
Similarly, we cannot discard Naspers’s assertion that its labyrinthine control structure was set up in the 1990s to ensure the independence of its media assets, and has been kept ever since to ensure continuity of its strategy. But we do know that this structure will be used to shield Bekker against action from shareholders unhappy with the way he has treated the allegations that subsidiary MultiChoice tried to bribe its way into being favoured by government.
Complexity was a necessary precondition for the funny business at Steinhoff, just as it is a necessary precondition for the thwarting of shareholder democracy at Naspers. It is at the heart of every Ponzi scheme and most large corporate frauds.
So perhaps it is time that we start to stand up against complexity.
We are often told how blessed South Africa is by the quality of our corporate regulatory environment, by our robust systems and our comprehensive surveillance. This, quite clearly, is bullshit.
The problems with Steinhoff were pointed out in Europe, which is also where the only criticism of Naspers’s convoluted tax treatments has come from.
By contrast, it was obvious, even before it was proved, that the share price of Gupta family vehicle Oakbay was being manipulated. In South Africa there was no action. Not only the state and its agencies stood idle, the JSE also failed to act on Oakbay, and auditors signed off on Steinhoff.
The entire, vast, expensive edifice of surveillance and control failed.
Just as it has failed, for decades, on Naspers. That company’s pyramid structure is an affront to both logic and corporate governance but, heck, it has made a lot of people filthy rich and it makes up a hefty portion of the JSE’s total capitalisation, so why mess with what works?
Because eventually the Ponzi scheme collapses. Because the “accounting irregularities” grow impossible to hide and R180‑billion in value is vaporised. Because MultiChoice is caught allegedly paying undue considerations in expectation of favourable treatment, and its parent company just shrugs it off.
There are positive moves afoot to prevent the next Steinhoff crisis and to make life uncomfortable for the unaccountable Naspers. The compulsory rotation of auditors would be a big step in the right direction. The teeth the Companies and Intellectual Property Commission started to show this year bodes well. Organised shareholder activism looks like it may be a bit of a theme in 2018.
That is not enough. If we are to prevent the next Steinhoff, we need activism at the level not of regulators or even shareholders but at the level of pension fund contributors and unit trust holders whose money fuels companies — and at the level of those who shop at Pep stores and subscribe to DStv, and so make the revenue wheels turn.
And the message is simple: complexity must fall. If we’re too stupid to understand a corporate structure, then our money should not be invested in it. If we can’t figure out who actually controls a company, then we should not be doing business with it.