5 December 2017, is a day etched in the minds of the working South African. Media reports were flooded with the collapse of the Steinhoff share price, a successful global retail company, listed on the Johannesburg Stock Exchange (JSE). Speculations around the cause of the collapse gave unclear answers but nonetheless, they shook the world.
“Contrary to the view that Steinhoff only took a wrong turn shortly before it imploded last December, a systematic heist played out from the start, when Steinhoff listed on the JSE in 1998.
” CITATION Cra18 l 1033 (Craig McKune, 2018)Discussion
Steinhoff first opened its doors in West Germany in 1963, founded by Bruno Steinhoff, which was initially a source and supply company. The company later expanded into manufacturing, supply and logistics of its products (furniture and household goods). In 1997 Bruno acquired a 35% share in GommaGomma Holdings from Daun & Cie, owned by Claas Daun (an old german acquaintance of Bruno). This acquisition is how Bruno Steinhoff got introduced to Markus Jooste (the CEO of Daun & Cie), who would eventually become Steinhoff International CEO.
Steinhoff International Holdings listed in the Johannesburg Stock Exchange in 1998, after consolidating Steinhoff Europe and Steinhoff Africa (formerly GommaGomma Holdings).
As a JSE listed company, growth in share price paralleled an increase in shareholder?s profits. This is best achieved through a number practiced concepts which are those that were implemented by Steinhoff International Holdings.
Firstly, profit maximization which is a process of analyzing how product is priced, how much is produced and how much is sold.
The greatest positive difference between the company?s Total Revenue and Total Expenses, is this said profit. Although this process is meant to yield the desired profits, it is important to acknowledge that there are factors that can negatively affect this outcome namely,
Secondly, wealth maximization focuses on the increase of the value of the company which directly results in a higher share price that are owned by shareholders. This is achieved through continual investments of available capital that yields highest possible Return on Investment, with the lowest to none risk of loss. Management must take note though that, a high share price cannot be reached if they fail to Increase Turnover and Decrease Expenses.
While Steinhoff engaged in investment and trade deals that cemented it as a retail megacorp, that?s where they encountered the Agency Problem and Costs·
Jooste, as the CEO of Steinhoff International (and other Steinhoff top executives) owned shares in companies that were trading with Steinhoff, without the knowledge of the company?s stakeholders. These deals inflated the value of the company assets and profits. The inflated prices benefited the company through its investments and simultaneously ballooning the pockets of the secret beneficiaries. The shareholders paid the ultimate price through the revelation of the accounting irregularities, possible non-compliance with laws and regulations governing their financial statements. This was revealed in an investigation by PricewaterhouseCoopers (PwC) that was initiated in December 2017 up to February 2019.
As one delves deeper into the Steinhoff Scandal, one finds that there was a flaw in the management structure of the company. Investigations into the collapse have also revealed that some of the top executives were reluctant to operation under the set rules and posed a high risk. This was just one of the identified warnings that the stakeholders failed to mitigate, to avoid the events that led to 5 December 2017.
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