Question

Critically analyze the element of Board failure with regards to the Steinhoff Scandal in South Africa

Answer 1

Steinhoff Scandal is one of the biggest scandals that South Africa has ever faced in its business history. There were many reasons behind occuring of this scandal.However, the most important reason is the element of Board failure. The board failed to fullfill its responsibilities which led to happening of this mishap.The company faced allegations of accounting fraud and accounting irregularities which caused the downfall of a company which was so successfully built over five decades. This was mainly because of the ignorance of the company's board towards the operations and management in the company.

Analyzing the element of board failure, it can be stated that there were many reasons behind the board failure. First could be the structure of the board i.e. the two-tier board structure where there are two boards i.e. the management board and the supervisory board. The management board oversee the company and executes strategies while the supervisory board control operations and handles business decisions.There was presence of two boards in the Steinhoff and that is one important cause of board failure as there was not a good flow of information between the boards and also this delayed pace of taking the decisions. The management board did not consulted the supervisory board before taking many decisions and so the supervisory board also did not disclosed information about the big transactions and the overtrading that the company was doing since years. At first they did not disclosed the information and later when the problems raised to an extent , in order to cover their mistakes, they started writing and recording transactions that were many times fictitious.and then to prevent the catching of these transactions , they made the financial statements more complex so that they were not easy to understand for everyone.These were the problems with the boards.

The board also formed the audit and risk commitee under one group. that paved way to not conduct internal audits properly in the company and to not having any red flags or alert from the risk commitee. It was also because of their failure to fulfill their responsibility and also because of the boards structure.On research, it is found that only some members of the commitee actually served and the rest did not which lead to the ineffective working and results of the commitee.In addition, there was no advisory and monitory board in the company to give suggestion to the other boards to perform good.

The Board failure is clearly seen by the fact that upon investigation came , is that the external auditors were not prepared to sign the financial statements because of the board;s inability to clearly state its financial statements and position.

It is clear from the above that Steinhoff emerged as the classic case of board failure.