Last week I spent some time with accounting students at the Nelson Mandela University where we discussed the specific role of financial managers in a changing world. We were meant to talk about how technology could change the way the accounting function has historically been carried out, but we, rightfully, spent our time and energy on the crisis facing the accounting profession and what ought to be done.
The moment you speak about accountants being in crisis, everyone turns to the whipping boys of the profession: the auditors. We have all come to take comfort in blaming the external auditors in almost every corporate failure that’s taken place in recent times.
That’s not entirely correct and is no different to blaming a football team’s loss solely on the goalkeeper simply because he is the last line of defence.
Like football, the financial accounting and reporting function is a team sport. It is made up of an ecosystem that must work in tandem to deliver a positive result.
The rules of football are simple. The team that scores more goals wins the match. So the unit of 11 participants needs to not only worry about scoring goals and but also defend its lines to keep the opposition out. To achieve this the strikers, midfielders, defenders and the goalie must all play their part.
The strikers are there to score goals, and since goals win matches, they tend to be celebrated more than everyone else in the team. Only their names appear in the scoreline. They can miss 10 chances and score 3 yet still take the match ball home as a souvenir. That kind of recognition hardly goes to defenders and goal keepers.
However, if a defender slips once in a match or a keeper makes a single mistake, he is taunted for weeks on end by the fans.
In business, the CEO’s are the strikers, the midfielders are the industrious accountants, the defenders are the boards and their committeees and the goal keeper is the poor auditor. Often left all alone by himself to save the team. When he lets a goal in, the fans blame him and forget that the opposition had to get through the whole team to be one-on-one with him.
To the contrary, when things go well, CEO’s get all the glory. Their names are up in lights when big acquisitions are announced. They get the big salaries, the big bonuses and the big share options. Over time they are also feared. Even when the goals dry up, hardly anyone raises questions, instead investors are always hopeful for a change in fortune - that the striker will strike again. Until he doesn’t.
This is how boards, audit committeees and auditors have been duped and will continue to be duped by CEO’s.
The most compelling example of such a superstar CEO is none other than Markus Jooste. The Wikipedia profile of the once darling of the markets now reads “Markus Johannes Jooste is a South African businessman and the former CEO of Steinhoff International. He is an avid horse breeder, and in 2016 was reported to be one of Africa's richest people, worth $400 million… Jooste's sudden resignation from Steinhoff on 5 December 2017 was followed by an involved and protracted controversy concerning Steinhoff's accounting practices in its Central European business. The resulting uncertainty saw some €10 billion of Steinhoff's value wiped off the markets in a matter of days, with further losses as the situation unfolded. The ensuing 3,000 page PwC investigation directly links Jooste and his CFO La Grange to the widespread fictitious transactions and accounting irregularities resulting in the Stellenbosch-headquartered company claiming R870m from Jooste and R272m from la Grange in a summons lodged at the high court in Cape Town.”
The Univesity of Stellenbosch has completed some work analyzing the Steinboff saga and it observes that “from a governance perspective the obvious question asked in cases like this is: Where was the board? In his testimony before a parliamentary committee, Christo Wiese, chairperson of the Steinhoff Supervisory Board when Jooste resigned, said that the crisis had appeared like a "bolt from the blue." The Steinhoff board comprised an impressive line-up of individuals, yet they seemed to fail in a collective sense to govern the company. As the story continues to unfold, analysts and commentators will attempt to answer many questions, including: Was there a problem with compliance? Was there a problem with the composition of the board? Was there a problem with the structure of the board? Was there a problem with transparency? Was the board simply hoodwinked by a corrupt CEO?”
CEO’s need to be held more accountable when it comes to financial reporting and governance.