Business Maverick


After the Bell: Steinhoff, KPMG, VBS and the art of arse-covering

After the Bell: Steinhoff, KPMG, VBS and the art of arse-covering
VBS Bank. (Photo: Thom Pierce) | Steinhoff International Holdings. (Photo: Waldo Swiegers / Bloomberg) | KPMG. (Photo: Leila Dougan)

Two examples of questionable efforts at hiding the truth have been highlighted in the press this past week. In both these cases, those trying to maintain secrecy are doing so in violation of common sense and public interest.

If you were to ask the question, “What has been the most egregious example of unintended consequences of regulatory reform in modern history?”, what would that be? 

I think you would find lots of great examples, but the one that sticks out for me concerns the publication of CEO salaries and share options. The expectation was that the earnings of CEOs of large companies in particular were getting out of hand and the best thing to do was to insist that all of these extraordinary but secret packages be revealed. The result would be a shocked public, and a humbled remuneration committee, and some sense of proportion would be regained. Throw them into the light, they said. Sunlight is the best disinfectant, they said. 

The result was precisely the opposite. Compensation in the US for top CEOs of S&P 500 companies increased by 940.3% from 1978 to 2018. Salaries of higher-paid workers increased with them, but over the same period, mid-level and shop floor workers saw very small real increases. How did this happen?

Transparent pricing usually brings prices down. But in this case, something weird took place. First, there was the ratcheting effect; CEOs could now compare their packages with their competitors’ so the tendency was to level up towards the highest paid, to which recruiters and head-hunters can attest. Further, in situations where performance is critical, often the rational actor doesn’t want the lowest price, they want the highest. Would you want, for example, the cheapest heart surgeon operating on you? The phrase “if you want monkeys, pay peanuts” quickly makes the rounds.

So now, this is going to make me terribly unpopular, but there is another possibility, which is that we had been paying the CEOs too little over the years.

I know, I know. Horrors. But you know, in a hierarchical organisation, there are some crucial decisions only the CEO can make, and you want the CEO to a) make them, and b) make the right ones. It turns out that CEOs who do make the right decisions can make a huge difference to the future, and even the existence, of the company.

That doesn’t mean there isn’t lots of abuse here, such as CEOs getting huge bonuses even when the share price of the company declines, flaccid remuneration committees and complacent shareholders. But generally, I find having a great CEO is absolutely crucial and is usually worth paying a lot to secure. And doing so helps not only the CEO (obvs) but also shareholders, and weirdly, employees.

I remember the time when executive remuneration was secret and the people who opposed the publication of CEOs’ pay packages were worried that the public would totally misunderstand and that even the lives of CEOs might be at risk if people knew how much they earned (kidnappings of CEOs’ children did rise for a time in some countries, but that seems to have exited the front pages). 

The reason I’m raising this all again is that this week opposition to transparency is still irrationally rampant. Two examples of questionable efforts at hiding the truth have been highlighted in the press this past week. I find I have to struggle with my journalistic instincts here; I’m naturally biased in favour of transparency. I think in both of these cases, those trying to maintain secrecy are doing so in violation of common sense and public interest. 


The first instance is the extraordinary efforts by Steinhoff to prevent the publication of a 7,000-page PwC report into the company’s collapse in 2017. An 11-page summary of the report was released, but my colleagues at amaBhungane and the Financial Mail have jointly submitted a Promotion of Access to Information Act request for the document. What remains of Steinhoff has refused to hand over the report, claiming the report is legally privileged because it was commissioned by Steinhoff’s legal firm Werksmans. 

That went to court and Steinhoff lost. Steinhoff then claimed that, since the company was registered in Holland at the time, Dutch law prevailed. Sadly for them, Dutch law seems to be very much akin to local law; privacy constraints can be overridden if there is a compelling public interest. They now claim British law prevailed. Anyway, this is all going to the appellate division sometime this year.

So the question is what is the real reason for keeping the PwC report secret? Obviously, we don’t know. The company claims, well, the story has been essentially told. But if that’s the case, what would be the harm? It’s possible some innocent people might be implicated. But if they are, they have their own legal remedies. And there is an equal possibility that some not-so-innocent people could be implicated. 

There are outstanding criminal cases and so there are sub-judice issues; and tactical issues too for prosecutors. But overall, I think it’s just that everybody is keen to draw a line under the newsflow. And also that the instinct for secrecy is very pervasive within the legal fraternity. What I would also like to know is whether Steinhoff’s owners, you know, its actual shareholders, as opposed to their hired hands who manage the company, agree with this strategy or not. I bet they don’t.


The second example is more complicated. After the collapse of the bank VBS, liquidator Anoosh Rooplal decided to sue auditor KPMG for just under R1-billion for signing off on the transparently false 2017 audit. The parties announced this week they had settled without mentioning the nature, or more importantly, the quantum, of the settlement. 

Is there an overriding public interest in knowing what exactly the settlement was? The argument against, I suppose, goes like this: KPMG has gone to enormous effort to restructure itself and raking up these old coals just makes that process even harder. There are no shareholders here since the company is in business rescue, so arguing there is a public interest issue is less compelling. There are, however, creditors, and they have a very direct interest.

Do those reasons really stack up? I don’t think so. My guess– and I might be completely wrong here – is that the settlement is probably a fraction of what was claimed because realistically, you either settle for that or you go to court for a decade. But because it was low, KPMG doesn’t want it publicised because then it would seem the firm got away with a steal. And the liquidator doesn’t want trouble with creditors for settling for what they might consider a miserly sum.

Basically, they are all covering their arses, and that, in my experience, is a very powerful motivation, and the unstated justification for a multitude of sins. DM


Comments - Please in order to comment.

  • Vincent L says:

    Great article. Thank you. I agree that maybe CEOs should be paid more but not immediately. Maybe a year or two after leaving their positions. I have seen so many instances where CEOs increase profits, cut costs and do all the great things that make them popular with the shareholders but all to the detriment of the company in the longer term.

  • Geoff Coles says:

    The liquidators claim was probably far too high from KPMG and clearly the latter want to pay as little as possible.
    BUT disclose the rationale!

  • Geoff Krige says:

    Let’s apply this argument about paying CEOs more to the president of our country. The president is essentially the CEO of South Africa. The president runs an organisation with an annual turnover of ZAR 2 Trillion, and with 65 million stakeholders. The CEO of even a very large company runs an organisation with an annual turnover of perhaps ZAR a few hundred Billion, maybe 20% of the country’s turnover, and with perhaps 10 million stakeholders, i.e 15 % of the population. Yet that CEO earns from the company something like 20 to 50 times what the country pays its president. So, following Tim’s argument, if we want a good president we need to up the salary to what? ZAR 200 million?

    • FarFrom TheCrowd says:

      The president is a civil servant who does not generate any wealth whatsoever, in fact, he takes wealth from production at a rate of 65% plus, for his own benefit. He gets up in the morning and gets paid his salary irrespective of his success in performance. If he fails, there is a very good argument that he will still get a pension.

      The CEO on the other hand, has to create 100% of the wealth out of thin air every single day. The performance measurement is determined by shareholders and the pay is approved by shareholders.

      We want a better president, we need to be better citizens. Have a referendum at the end of the year to determine the president’s pay. Then maybe we get something better.

      • Geoff Krige says:

        Afraid I don’t agree. If the president and his cabinet have nothing to do with creating wealth, why are we all castigating the ANC for the economic woes of the country. The president and his cabinet must formulate the legal framework, policies and infrastructure to ensure a strong economy. Much like to CEO and executive of a company. If your theory is correct, then we must all turn our disgust at the state of the economy away from the ANC and onto the CEOs of our major companies. I also don’t agree that the CEO creates the wealth. The company creates the wealth. Without the mine workers, the CEO of a gold mine gets nowhere. Without the shelf packers and delivery truck drivers the CEO of a retail chain gets nowhere. It is simply not true that the CEO creates the wealth. A good CEO forms the right policies and infrastructure to enable the company to thrive. Much like the president of the country.

      • JP K says:

        The point is that leaders matter. As Tim pointed out, you wouldn’t want the cheapest heart surgeon. Even supposing we accept the argument that the president doesn’t create wealth, the wrong person can certainly destroy it…

        For the president unfortunately they are elected with no additional criteria required other than the number of votes. I do agree though that we need to better civic responsibility.

  • Charles Butcher says:

    Thieves look after thieves particularly in the legal profession and law enforcement, because, in the land of the blind the one eyed man is king.

  • Thomas S says:

    This is cute story, but does nothing to explain why the wework guy, the CEO of Boeing (etc etc) are all able to mess things up so terribly and then stroll off to new jobs in industry at the same rate. And let’s not touch the fact that the golden parachute seems to work regardless of whether you drive the company into the ground or not.

    If CEO quality is important, then why are failed CEOs treated exactly the same as successful ones?

  • Mike Wiggill says:

    Good article.
    CYA is the default at every level, but most obvious at the highest levels such as Politicians and Big Business.

    I loved the analogy of choosing a surgeon to save your life because he is the cheapest.

    In terms of CEO remuneration and “pay gap” so often shouted about : in my opinion there are two things seldom mentioned.
    1. Shareholders wanting Directors to be paid less do not care about “closing the pay gap” but rather about possibly increasing the bottom line and the possibility of this increasing the value of their shares or the amount of their dividends.
    They would be the first to complain should those “cheaper” CEOs then leave for greener pastures or produce worse results.
    2. Thinking the “pay gap” will be dramatically reduced by paying the CEO less and using that to increase general workers wages is akin to believing that reducing the jackpot on a lottery will make all the lottery players rich(er).
    Basic arithmetic says otherwise.
    In truth, getting a “cheaper” CEO to save even R4 Million per year to share among 2000 “general workers” may give them a small increase but not of the “life changing” variety or enough to help them build wealth. However, a “cheaper” CEO is very likely to reduce profitability to a Level resulting in job losses, which would be life altering in the worst way for those affected, or using the analogy, the patient may die.

    • David Hill says:

      great comment Mike

    • Geoff Krige says:

      That argument fails if all CEOs are “cheaper”, i.e. paid closer to what they actually contribute. What we need is a global agreement (which of course we won’t get because the economy is driven by CEOs and their cronies) that no CEO can earn more than say 100 times what their lowest paid employee earns. That way CEOs would have much more reason to push up their lowest rates of pay.

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