Steinhoff, governance, and the value of data


stock crashLast week, Steinhoff CEO, Marius Jonker, resigned following allegations in Germany of irregularities in its financial reports.

In the week since then Steinhoff shares have lost over 90% of their value,.

Some are calling this South Africa’s Enron.

Comparisons to the US energy giant whose bankruptcy resulted in a global recession and lead to the SarbanesOxley (SOX) Act are inevitable

  • Both were darlings of the stock exchange. before its collapse, Steinhoff was one of the top 10 shares in the FTSE/JSE All Share SWIX Index
  • In both cases, questionable accounting involving off-balance sheet transactions and inflated revenues made the business appear more attractive to the market than it really was

It is too early to understand the full impact of the Steinhoff disclosures. The findings of investigations in Germany and elsewhere have not been disclosed, neither have existing investors disclosed their exposure.

However, as with African Bank two years ago, it is clear that shareholders and creditors have lost substantial value

South Africa’s richest man, Christo Wiese has lost an estimated R49billion in a week due to his personal exposure to Steinhoff.

Off more concern to the general public is our exposure, through investments by asset managers such as the Public Investment Corporation (PIC) which invests on behalf of government retirement funds.

Following African Bank’s collapse I wrote this: South African banks must restore credibility  

 

In that post I suggested that data governance and data quality need to be seen as strategic enablers of good corporate governance.

Documented and shared data policies define the culture of the organisation

Stenhoff has driven value through the acquisition of stagnating businesses whose performance has been seen to improve post acquisition.

This growth has lead many to invest heavily in the stock, and has provided collateral for loans granted to the company.

Yet, cash flows did not correspond with the operating profits.

A report released last week by investment research company, Viceroy, uncovers “a combination of off-balance sheet vehicles inflating earnings and accounting shenanigans.

It seems clear is that the culture of the organisation allowed these questionable practices to continue.

Steinhoff’s polices on accounting appear to have allowed or even encouraged these activities – with serious questions being asked about the entire board.

Data is, of course, not limited to the financials.

Policies should also define how we manage customer data, how we manage our stock, how we compensate our staff, and how we forecast future business.

Generally accepted accounting principles govern how we account for earnings.

Data governance defines how we deliver trusted data outside of the accounts.

What is the value of data?

I am often asked how we can measure the value of data as an asset.

In an interview with Moneyweb, Nedgroup Investments Growth Fund, Electus, explains why it sold out of its entire Steinhoff position last week.

We acknowledge that Steinhoff has some very good investments such as Star, Pep (Europe), PSG and KAP, which might underpin the Steinhoff valuation,” Electus said. “I understand that this is the reason why many good investors would now want to hold onto their Steinhoff shares, rather than realise a big permanent loss. However, based on the above risks, and especially as we have no reliable or accurate financial statements (my bold) for Steinhoff, based on our risk-management, we will not look to hold any Steinhoff shares in the Growth Fund, at least until there are audited financial results and the conclusion of PwC’s independent investigation.”

 

No details of any formal investigation have been released.

The collapse in value of Steinhoff can therefore be attributed to a lack of trust in the financial data.

If we can agree that data is a representation of the business then I would suggest that the value of the data is the value of the business.

In this instance, poor data quality caused by dubious accounting  practices, meant that the value of the data and, by extension, the value of the business, was overestimated.

The data, along with the business, has lost 90% of its value.


It is reasonable to assume that multiple parties at Steinhoff were aware of what was going on.

Sound data management practices cannot assist when management turns a blind eye.

Yet, for other businesses data management can help to ensure that data is trustworthy and offers a fair representation of the value of the business

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