30 August 2018
Third Newsletter, Wright Publishing
Based on my book “One Race, The Human Race, Now”
The comparison of Steinhoff with our State Capture, these are the thoughts from a reader of “One Race, The Human, Race, Now”. Some of readers would have by now read James-Brent Styan’s book “Steinhoff Inside SA’s Corporate Crash”.
The numbers in the crash– within a few weeks at the end of 2017 the share price went from R90,00 per share to R6,00 to R2,00, wiping off nearly R200 billion Rands from the South African and German stock exchanges. Debts stand at €10,4 billion or R156 billion.
I draw a parallel with Steinhoff, where the primary motivation of the Board was to grow the business into the biggest furniture retailer in Europe, this allowed them to encourage management to make acquisitions and present the outcome as a winning formula. Indeed, all those (senior management, shareholders, external auditors, money managers and banks) who are on the bandwagon, are likely to profit greatly in their personal capacity. This is called ‘incentive ‘. Clearly, the time has now arrived when they must all reconsider whether they were observing the facts that the increasing burden of debt that came as a by-product, would stifle the growth and prosperity they all sought.
That these debts were concealed or brushed under the carpet, and that no-one within the organisation was prepared to blow the whistle for fear of upsetting their own apples with the cart, is understandable.
Society has laws. It is possible that the laws were obeyed in principle – but not in the spirit prescribed by these laws.
When one reviews the situation that has developed in the administration of South Africa Ltd., one finds that the priority to fund and develop a democratic society, is a burgeoning economy; without a growing and well-run economy there can be no harmony and there can be no scope for disciplined freedom among the people. Ultimately, the leaders, too, will be the losers.
What did the ANC and Steinhoff board do wrong? Perhaps they were both trying too hard to implement their respective outcomes but continuing to apply the flawed policy they were both bent on following to achieve the success story they were aiming for. What they failed to do was to check what was happening to their target, and thus to know the score. Therefore, they did not realise that the target had moved or that their sights needed to be re-adjusted.
Perhaps it would have been helpful if they had decided to take off the blindfold from over their own eyes!
The South African Public has been exposed to ANC propaganda to such an extent that many believed that the Politically Correct stance was, indeed, correct. This involved the acceptance of Affirmative Action and BEE as the core focus, and to achieve these ends, the use of Cadre Deployment as ammunition.
If one was to pursue the analogy with Steinhoff (and some other Big Businesses), one does not need go further than to question whether buying out the competitors, and employing one’s friends to run the show, can be a guarantee for success – especially when using other people’s money.
The SAA employs more than 900 employees per aircraft – in comparison with BA and most other airlines which have a ratio of some 130 employees per aircraft. This is unsustainable. Even, in the early days of AA, when Coleman Andrews was brought in as CEO (rather than a White South African in the absence of an eligible Black South African), financial disaster struck – and no lessons were learned from the result where the CEO (in terms of his flawed employment contract) departed with a multi-million Rand package.
The sorry tale of SAA went on and on, and there are innumerable stories of skilled technical personnel being lost, one way or another.
ESCOM is a tale that does not require further elaboration, so, too, with other SOE (State Owned Enterprises) that have been put in the hands of cadres deployed to implement ANC policy – rather than the best interests of the country, let alone, the ability of a diminishing tax base that funds this incompetence – rather that useful services.
Neil Wright has indicated that South Africa has one of the largest Cabinets, with cabinet ministers and their deputies, presiding over department heads that have likewise been deployed and are not adequately monitored. If they are unable to do their jobs, they employ consultants at enormous expense. Even then, do they follow the advice?
The policy of creating a bloated bureaucracy, with thousands of jobs not being properly done – or even required – has resulted in whole departments, and Provinces, collapsing in chaos and failing to deliver the services that both business and the man-in-the-street require of them in a civilised society. No wonder that the economy has failed to deliver.
When the expenditure on payroll, and on interest charged on borrowings, have increased beyond the State’s capacity to fund the shortfall in revenue, what is the first target? More taxes. This cannot provide a rational solution. In fact, the thrust of additional taxes has been focused on those who have very little say in the matter – and are becoming poorer – and less able to contribute to addressing the needs of those who have looked to the ANC for their daily food, and need one remind the reader, of ‘a better life for all’.
The effectiveness of the Police service, and its adjuncts; the effectiveness of the department of education must be successfully and swiftly addressed. What do most people cry out for most frequently? Law and order and an opportunity for their children to receive a decent education.
The primary objective of the State President is to win the next election, and to keep the ANC as the ruling party.
This was the objective of President Zuma, no doubt, in facilitating the Gupta interests (who were presumably willing to fund the ANC). The objective of President Ramaphosa is to balance the 50:50 internal interest groups of the ANC while somewhat gingerly poking in the ashes of the burnt-out SARS for a glimmer of light. Perhaps, also to address ESCOM’s woes and those of SAA, to get the Department of Home Affairs – and all the other burnt out departments properly administered and staffed by competent individuals who will not feel themselves to be beholden to party politics but rather to getting their job done efficiently and productively. This means that the leaders of all ministries must allow the department heads to manage these departments – and to ensure that they (or if necessary, their replacements) are managing these departments according to world standards, and demanding, and getting, productivity from a greatly reduced employee-empire. No more can any department seek solutions in employing more people: they must employ fewer people.
Without doubt, this will not be a popular move in the eyes of those who do not or cannot pull their weight. But if the worst comes to the worst – rather be these that suffer than that the future of South Africa be jeopardised any longer. The easy route is the route that was followed in the past. It is not, and has demonstrably shown itself not to be, the sustainable way forward.
A change in attitude is the only way forward. This change is summed up in the call for: ‘One Race. NOW. The Human Race ‘.
South Africa is still inhabited by the Human Race – and we are all faced with a race against time, to get this country back on the tracks, NOW.
Already it is too late for some. But we have an unsustainably high birth rate – and it is for those, that we, who may be in a position to impose the Right Thing to ensure that there is a chance of reversing the redundant and failed policies that have brought all of us to this sad impasse, must cry out.
It is not certain that every analogy draws to an appropriate conclusion, but the comparison of corporate failure and a symptoms of a failing State, bears consideration. The comparison between the rather uncertain fate of Steinhoff and the downward spiral of South Africa under its failed management polices to which I have alluded, is something that will in due course manifest itself to the public and bring with it the same outcome to its stakeholders. In the final analysis, money is the key factor, coupled with the removal of those who have been wasting the original capital – and dependent upon changing the policies that have been the underlying cause. It is the failure of those in charge, and the ongoing denial by those in the position to alter course, that has created the problem. Those leaders who refuse to believe (or care not) that we are headed away from prosperity, and stubbornly hold on to a mistaken belief that their policy of benefiting one race group against the opportunity afforded to others, will end up the same way as the Steinhoff board and its management.
These unworthy cadres will end up having no job, and will have lost for the public, far more than the Steinhoff board have lost for those shareholders whom it, too, had been seeking to benefit. Indeed, they may have much more to answer for. It is not just an investment – money – that is at stake. It is South Africa’s humanity that is AGAIN at the crossroads. Don’t forget the previous crossroad – more than 25 years ago – and that it was the same omission to acknowledge that it was ALL South Africans that should enjoy unfettered opportunity that brought us to that crossroad. We are there once again! The ANC exco have abused the spirit of the law of Statehood, just as it would now appear to have been the case with the Steinhoff management’s abuse of the law of corporate integrity. Whether or not the perpetrator subscribes to the law, or not, ongoing abuse of the law finally leads to the same unintended outcome. South Africa has not been the land of opportunity by (for) thousands of its children, who, realising the limits placed on their advancement and on the limitations on the freedom of opportunity to which they are entitled in their home country. They have left for other lands.
By the same token foreign investors will not readily be lured into believing that the ANC has read and understood the clearly marked signpost (that is still the same one as before), to find the right road at this crossroad. Who will invest in a company where the CEO does not have the support of a competent board? One which with can be relied upon, with honesty, to exercise oversight and prescience? One offering good customer service; one where the financial position is fudged; where the product is no longer in demand; where its marketing policy is a not working; where the R & D team have been side-lined; from which skilled staff have moved away to the competitors – where the sources of external finance have dried up? In short, South Africa is in greater need of rescue than Steinhoff. It is running out of money and expects that the difficulties will be overcome by appealing to its shareholders (the voters). However, what can most of these ‘shareholders ‘contribute, financially? A vote of confidence is not going to be forthcoming in financial terms (such as in the case of a corporate Rights-Offer). Not until management have changed their game plan for resuming sustainable dividends. The time is coming when it is the creditors who inevitably will decide on the future of South Africa (as happened in Greece, and as will probably happen at Steinhoff), with imposition of austerity measures, and extreme budget restraints – and a dilution of equity.
How, then, can dividends be resumed? Only if all the ‘shareholders ‘and would-be ‘shareholders ‘in the future, are guided to seek a prosperous future through South Africa making an investment in the Human Race and working towards RATIONAL economic transformation (as opposed to RADICAL economic transformation). Not only in the perceived interests of the controlling shareholders, who have increasingly sought to benefit only themselves, through the methodology of a corrupt and systematic jobs-for-pals’ policy, backed up by Affirmative Action, and so-called Broad-based Economic Empowerment policies – all of which have or should have reached a sunset time – by now.
South Africa has found a new State President, but he remains hidebound by opportunists and self-interest within the leadership of his Party. Management skills are driven from the top all the way down. The optimistic observer will have detected certain good intentions, but these will have to be followed up with tough discipline to establish whether there will be buy-in from the line management – and if not, where he will find competent replacement skills.
Therein lies the test of his management skills, and of his like-minded colleagues. As with Steinhoff, South Africa has good assets and with the right management, these assets can once again be made profitable for the benefit of all the stakeholders.
Thanks to the reader of “One Race, The Human Race, Now” for your thoughtful account!
We have not heard the end of the Steinhoff saga. Nobody has been in court yet, nor have the affairs of Steinhoff been wound up or liquidated. Speculation exists as to what will happen.
Could there be a positive outcome? There are some good people on the advisory board of Steinhoff (the main board in Germany). These include the Acting Chairman, Heather Sonn (daughter of Franklin Sonn, former political activist, academic and businessman), Angela Krűger-Steinhoff (daughter of one of the founders, Bruno Steinhoff), Jack Wiese (son of Christo Wiese). These three are the new generation.
The question – is there a silver lining, can the board through restructuring, with the goodwill of all stakeholders (more importantly, creditors) turn Steinhoff around? There will have to be pruning of subsidiaries, those unsuited to be part of this massive conglomerate must go.
The same question exists for our politics – can Cyril Ramaphosa’s “New Dawn” turn the government around? Will it work, putting the broad church of unity above principle? Is this a possible strategy? Will the ANC bring back the inclusive democracy we need? Or must politics play its part and a corrupt government be voted out of power and replaced by a coalition or even a Government of National Unity?