Every quarter seems to usher in another story about company failure due to board, audit or governance issues.
Renowned vehicle manufacturer, Volkswagen, provides a high-profile example of corporate governance failure. In a scandal that came to be referred to as “Dieselgate” or “Emissionsgate”, in 2015 it became publicly known that VW had used software in its diesel engines to manipulate data under testing conditions in order to meet the diesel engine emission restrictions set by the United States Environmental Protection Agency. In normal road use, however, diesel emissions were found to be up to 40 times above the limit. The scandal was not limited to the US and subsequent investigations revealed VW vehicles around the world had been fitted with this software.
The case was multi-faceted, and had been under investigation for some time prior to VW being served with a notice of violation of the Clean Air Act by the EPA, so apportioning blame and establishing levels of accountability has been a complex issue. Munich-based news outlet Süddeutsche expressed the view that the root cause of the issue came down to the company not having “functioning corporate governance” and operating with an “autocratic leadership style”, a view backed up by the fact that before being forced to resign in April 2015, Ferdinand Piech, along with some family members and close friends, had owned more than half of the voting shares and had formed an alliance to vote in unison. Shareholders voiced doubts about the qualifications of the major decision-makers and the lack of transparency with which business was being conducted, but they had little influence over outcomes.
The Steinhoff scandal revealed how a lack of a focused strategy, coupled with one person having too much power, ill-defined levels of accountability for board members and a lack of transparency resulted in the near collapse of a company that at its peak featured in the JSE Top 25 Industrial index, the JSE Top 40 index and the JSE Socially Responsible Investment index, as well as securing a list on the Frankfurt Stock Exchange in 2015. Steinhoff’s 2016 annual report listed revenue of €8,645 million with a net profit of €1,510 million, representing a growth rate of 11.8 percent year-on-year. Their share price dropped by 88% in the three days following the revelations of suspected fraud.
On 5 December 2017, Steinhoff CEO, Markus Jooste, made an announcement that he would step down from his position with immediate effect. The Steinhoff board announced that accounting irregularities had come to light, and these would require further investigation. PricewaterhouseCoopers were appointed to conduct an independent investigation which revealed that the firm had recorded fictitious or irregular transactions totalling 6.5 billion euros between 2009 and 2017. The levels of deception ran deep and the fallout was tremendous. Investigative reporters agree that Jooste could not have carried out fraud on this level without anyone else knowing, but ultimately he was held accountable. Steinhoff is trying to salvage what it can and, as published in the “Overview of Forensic Investigation” on their website in 2019, a key point of its remediation plan will include “Governance: the continued change and improvement to all aspects of governance and controls throughout the Steinhoff Group supported by a clear plan and support for the required further changes”.
In the examples cited above, as well as many others, including Enron in the U.S. and Carillion in the U.K., there were issues with the level of transparency and accountability; either no-one was seriously tasked with carrying out the mandate set by the board, or no-one was even made aware of issues until it was too late to do anything about it.
High performance boards and quality CEOs are not afraid of transparency and welcome information and knowledge sharing – knowing that it helps steer the ship in the right direction and is the source from which an innovation culture can begin to emerge and work its magic.
CoAcumen can provide a platform for CEOs and High-Performance Boards to create, implement and monitor their strategy through a single context, using the Raykis platform in conjunction with its proprietary management playbooks. This transparency also enhances the value of the non-executive board members who can prepare themselves on changes to the context, and thus add more value to monthly or quarterly board meetings.
The Common Strategic Context playbook, for example, frames the governance of the company and strategy by linking the following key elements:
- Strategic objectives
- Evaluation criteria for the outcomes required to realise the strategy
- Quantitative measurements of success
- The data landscape which supports, explains and expands upon measurements, allowing for analytical capability to dig deeper into the numbers when necessary to identify and track anomalies
- Assets and prioritised initiatives that “move the needle” on stated objectives
- Lines of responsibility for all of the above, from the board down to the operations teams responsible for implementation
The resultant blueprint which emerges becomes a living asset, woven into the cultural fabric of the organisation by instantiation of consistent “rituals”, constantly aligning governance with the day-to-day actions of employees, while providing the context that the Board, the CEO and the Executive Team need to fulfil their mandate to their stakeholders consistently and effectively.