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Head of Corporate Governance, TMF South Africa
26 March 2018
Read time
9 minutes

The strength of admitting weakness

An organisation that has the strength to analyse where it went wrong, proactively take steps to fix the problem and provide full disclosure is more likely to be sustainable than one that prefers to cover up wrongdoing.

The 2017 Chartered Secretaries Southern Africa (CSSA)/Johannesburg Stock Exchange (JSE) Integrated Reporting Awards took place late last year. The event was festive and the winning candidates were justly rewarded for their efforts.

However, in the Large State-owned Company category, no award was made because:

….an exemplary report loses credibility if it does not consider the legitimate needs and interests of its stakeholders.  Based on the fact the highest scoring reports lacked transparency on how the organisations are addressing stakeholders’ legitimate concerns, a winner was not awarded for 2017

 Standout reporters share common characteristicsBusinessDay, Thursday, 30 November 2017

The audience clapped their approval. With the ongoing daily revelations of the Gupta leaks and its assault on good governance, this was not a surprising response. However, I believe that this lack of balance is not limited to large State-owned companies. I believe that many annual integrated reports, both in the public and private sector, do not provide a sufficiently balanced picture to enable the user to anticipate possible risks and make informed decisions.

Looking at this phenomenon from the issuer’s perspective, I believe there is often a hesitancy in disclosing negative outcomes and key risks in case it reflects badly on management; or expose a vulnerability, giving the competition an edge and an opportunity to exploit that company’s weakness. However, I believe that exactly the opposite is true.

Let’s consider some case histories, both those that have risen to the challenge of addressing a failure effectively and timeously and those that have failed dismally.

Pick ‘n Pay

In May 2003, Pick ‘n Pay was exposed to an extortionist.  Two incidents occurred following which a contaminated can of sardines was immediately removed from a shelf at a Boksburg Pick ‘n Pay store. The poisoned can was sent for forensic analysis which confirmed that the can had indeed been poisoned. Although the activities of the extortionist were limited to two stores in Gauteng, Pick ‘n Pay immediately arranged that consumers could return all three items that could possibly be contaminated that were purchased at any Pick ‘n Pay store in Gauteng for a full credit. Pick ‘n Pay absorbed the substantial cost of the crisis which included additional store security. The Mail & Guardian reported that Pick ‘n Pay’s shares remained stable and customers were back in their stores on the Monday following the weekend announcement that certain products were being withdrawn due to poisoning threats. In fact, that Monday afternoon, their share price traded at R13,60 from the Friday closing price of R13,56.1

Not a significant rise, but nevertheless a signal of market approval.

This is clearly a good example of a company that values its reputation and the trust relationship with its customers. Without consumers, Pick ‘n Pay has no business. Sean Summers, the Chief Executive Officer, took expert advice on how to deal with an extortionist and proactively addressed the crisis. His timeous response to the situation not only protected the company’s reputation but also deepened the faith that stakeholders, particularly consumers, had in the company.

MTN’s Nigerian fine

At the other end of the spectrum, MTN received a fine in Nigeria in 2015 for its failure to disconnect 5 million unregistered SIM cards. Its share price flunked 30% during 20152. However, following a protracted negotiation with the Nigerian regulator, during which MTN agreed to pay a R24,94bn fine to the Nigerian government, its share price rose 21% on the JSE.The Group CEO and the CEO, and the head of regulatory for MTN Nigeria resigned and an executive chairman was appointed on an interim basis. The market sent a clear message to MTN that it should have admitted its governance failure, put in the appropriate controls and paid the fine levied on it at the time that the non-compliance arose.  It is noteworthy that MTN’s 2015 annual integrated report addresses the matter, which was published after the agreed settlement as the greatest challenge of 2015.

President Richard Nixon and the Watergate scandal

President Nixon’s resignation was precipitated by the cover up following the Watergate scandal rather than the actual Watergate scandal itself. In June 1972, McCord and four other men working for the Committee to Re-Elect President Nixon broke into the Democratic Party’s headquarters in the Watergate building in Washington DC. They were caught going through files and endeavouring to plant listening devices.  Nixon initially denied any knowledge of the break-in or that his administration had given the instructions.  The burglars went on trial in 1973 and either pled guilty or were convicted.  A special Senate Committee was set up to investigate the truth wherein it emerged that McCord’s allegations that Nixon was involved in the cover up of the break-in and that his administration had illegally wiretapped the phones of journalists who had been critical of Nixon, was in fact true. Nixon continued to deny any involvement until secret tapes of conversations he had made in his office were revealed.  They contained damning evidence resulting in the House Judiciary Committee approving articles of impeachment against the president for obstructing justice.  President Nixon resigned4. He left office with his reputation in tatters. It took many years before he was accepted into the group of elder statesmen, comprising former USA presidents.

Steinhoff’s share price pounding

Following revelations in December 2017 of alleged financial irregularities in Germany resulting in a criminal and tax investigation in Germany, the CEO of Steinhoff, Markus Jooste, resigned. Steinhoff’s share price on the JSE plummeted 60% in Frankfurt where its primary listing is based. Other companies in the group and those with links to their Chairman, Christo Wiese, were also severely impacted with Steinhoff Africa’s share price declining 29% on the JSE and Shoprite falling 6,3%. This is clear evidence of a company not addressing its problems timeously and appropriately. The investigation dates back to 2015 when German authorities raided Steinhoff’s German headquarters.  Although Steinhoff responded that there was no evidence of wrongdoing, and that information alleging wrongdoing by Mr Jooste was “wrong or misleading”, it clearly did not do enough to appease the market.5

The fact that the auditors failed to sign-off Steinhoff’s 2017 financial results timeously raises questions to which the answers are not yet available. However, it is clear that Steinhoff has not handled the matter optimally.  The board of Steinhoff has very highly qualified board members and it would be very interesting to see the minutes of board meetings and particularly of the Audit Committee to ascertain how the matter was addressed.

All companies need a crisis management plan.  For companies listed on a stock exchange, there is a more urgent need to do so and to respond to criminal or ethical behavior timeously as the market is very quick to punish a company and less forgiving, as evidenced by a slower improving share price, when the company does the right thing.  Christo Wiese has been appointed the interim CEO following Markus Jooste’s resignation.  With his successful track record, it will be interesting to see what steps he takes, and how quickly he implements them, to restore market confidence in Steinhoff.


Both in politics and in business, the public reacts strongly to injustice, criminal and unethical behavior, whether actual or perceived.  Whatever politicians and businessmen do, the public is quick to judge them.  Companies and other juristic persons are managed by people. People are fallible. The public understands that. The public and investors are forgiving and continue to show loyalty where an organisation admits its failings and addresses the matter swiftly and ethically.

The annual integrated report is an opportunity for a company to demonstrate its commitment to a high standard of corporate governance and ethics. Striving for high standards is a noble goal but not always achievable.  An organisation that has the strength to analyse where it went wrong, proactively take steps to fix the problem and provide full disclosure is more likely to be sustainable than one that prefers to cover up wrongdoing.  In this technological age, the truth will come out, sooner or later.  It is much better to be proactive and control the agenda than let the media control your agenda.

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This article originally appeared in the February 2018 edition of Global Governance Voice.


  1. [Business Tech, 10 November 2015,].
  2. [MTN shares soar after it agrees to Nigeria fine payment, 10 June 216].
  3. [President Richard Nixon and the Watergate. Scandal ] .
  4. [Wiese wades in to fix Steinhoff, The Times 7 December 2017.]
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