RSK4802 Assignment 2 2023 (COMPLETE ANSWERS) - DUE 23 OCTOBER 2023
QUESTIONS ASKED:
Governance Risk and Compliance Management assignment material
2023
Read the case study below and answer the questions that follow
Assignment 2 Unique number
Due date 23/10/2023
Did Steinhoff’s board str...
, Governance Risk and Compliance Management assignment material 2023 Read the
case study below and answer the questions that follow Assignment 2 Unique
number 591647 Due date 23/10/2023 Did Steinhoff’s board structure contribute to
the scandal? Published 2 years ago on January 29, 2018, By Forbes Africa The
global retail group Steinhoff is reeling under allegations of accounting fraud. Since
the allegations surfaced last year the CEO of the multi-billion-dollar business,
Markus Jooste, has fallen on his sword and the company’s stock has been
hammered, at one point losing about 90% in market value in a few days. Observers
are calling for harsh punishment, including jail, for the culprits. Early reports
suggest that Steinhoff was involved in massive accounting fraud, including the
overstatement of the company’s financial position. The company is listed on both
the Johannesburg Stock Exchange in South Africa as well as the Frankfurt Stock
Exchange in Germany. With a primary listing in Frankfurt and an Amsterdam
corporate address, Steinhoff follows the Dutch corporate governance code.
Consistent with this code, Steinhoff has a two-tier board structure. This is made up
of a management board (comprised of four top executives) and a supervisory board
(comprised of 9 non-executive directors). The point of the two-tier board structure is
to ensure that the supervisory board is independent from the executives who sit on
the management board. The management board accounts to the supervisory board,
which accounts to the shareholders or to the company. The two-tier board structure
is favored in Western Europe. The US and UK prefer the one-tier – or unitary board –
structure, as does South Africa for historical reasons. It appears that Steinhoff’s
decision to opt for the two-tier board structure may have contributed to its undoing.
Natural holes in the structure, the biggest one being the fact that the management
board doesn’t always keep the supervisory board in the loop, combined with
Steinhoff’s corporate culture, which was anchored by a dominant personality,
appear to have created accountability holes. Two-tier versus one-tier structure
There are pros and cons to both systems. One of the good things about the one-tier
board system is that executive directors and non-executives directors sit together
on a single board. Traditionally there would be two or three executive directors (the
CEO, chief financial officer and the chief operating officer) sitting alongside a
majority of non-executive directors. This means that there’s a seamless flow of
information between executives and non-executives. The executives can be asked
questions with the entire board present. This closes any information asymmetry. In
addition, it can also facilitate quicker decisions. On the downside, the unitary board
structure has been criticized for its propensity to compromise the independence of
the non-executive directors. This dilutes their oversight role. For its part the two-tier
system seems to have more checks and balances built into it given that the
management board is subject to oversight by the supervisory board, and the
supervisory board has to answer to shareholders. But the two-tier structure is often
criticized for information asymmetry between the management board and the
supervisory board. In other words management knows a great deal more about the
business than the supervisory board. This can lead to operational challenges
developing without the board noticing until it is too late. Steinhoff’s board structure
followed the two-tier system. In 2016 its management board comprised three
members, Jooste (CEO), Ben La Grange (Chief Financial Officer) and Danie van der
Merwe (Chief Operating Officer and now acting CEO). As is normal under the two-
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