NSPR Comments On Crisis of the Week in Wall Street Journal 12/20/17
A Steinhoff International Holdings NV logo sits on display outside the company’s offices in Stellenbosch, South Africa.Photo: Bloomberg News
This is a weekly commentary by external experts.
Retailer Steinhoff International Holdings NV is in crisis after its stock price dropped as much as 82% after it announced the resignation of its chief executive amid an investigation into accounting irregularities. Prosecutors in Germany are investigating allegations the company’s management used off-balance sheet entities to hide losses in its operations and artificially pump up its valuation. The stock slide increased scrutiny over a set of Byzantine transactions between the company and related parties. The company then said its executive chairman, Christo Wiese who was named interim chief executive after CEO Markus Jooste resigned, also stepped down.
The company issued a number of statements, the first saying Mr. Jooste resigned and that the firm hired accountancy firm PwC to conduct an independent investigation in light of what it said was new information relating to accounting irregularities. The company’s next statement backed Chief Financial Officer Ben LaGrange, saying nothing points to his involvement in the matters under investigation. A third statement announced the creation of a board subcommittee “to bolster the independent governance of the group,” while a statement said the company is “fully focused on safeguarding operational liquidity to continue funding existing operations throughout its various subsidiaries.”
The experts evaluate how well Steinhoff is communicating during this crisis.
Vincent Schiavone, chief executive, AKUDA Labs and Prioratus Consulting and Crisis Simulation: “Communicating during a catastrophic crisis–a potential extinction event–is a difficult if not impossible task. Any crisis where the share price tumbles 80% is a catastrophic crisis. Steinhoff Crisis Communications is doing as well as any communications group can in an impossible situation, with a few glaring exceptions.
“Steinhoff’s crisis team can only communicate what the board and lawyers allow, which is very little in this type of crisis. The best strategy in a catastrophic crisis is a two-pronged approach. One, release all the bad news ‘facts’ as soon as and a fully as permitted, without embellishment and before the press reports. Two, communicate clearly the positive actions the company is taking to save itself. Steinhoff appears to have executed this strategy well, with a constant stream of releases of bad news from accounting issues, executive departures, banking issues, board issues. As the crisis cascades the communications is keeping pace.
“On the positive side, the company quickly communicated the removal of the chief executive, appointed an interim CEO, created a board committee of independent directors, hired forensic auditors and advisors, and replaced the interim CEO with an independent CEO. The only questionable ‘positive action’ statement was one regarding the retention and confidence in the chief financial officer. While this was intended no doubt to calm the markets, it should have been expected to have a negative effect in a financial irregularity crisis.
“Noticeably lacking in the Steinhoff crisis communications [response] is any communications to employees, customers and stakeholders. This is a huge mistake. While it can be argued the best approach when you have nothing good to say is to say nothing, this is very short-sighted. Customers and employees are the value in Steinhoff and a clear statement is needed [in which] the board and management says it understands the current issues are of great concern to them and that they will act quickly to resolve the crisis and restore trust.”
Jennifer Vickery, chief executive, National Strategies Public Relations: “It appears Steinhoff took years to build its business and…only minutes for its actions to ruin its once-stellar reputation. While it has been communicating, it hasn’t been anywhere near transparent enough for its investors. When something like this happens, you have to give investors a solid explanation; unfortunately, that’s not what has transpired. There was a definite lack of information and reporting despite the frequency of statements being released.
“Its statements foreshadowed warning signs but lacked sufficient information to have a full understanding of what was taking place. The statement about the resignation of the CEO was a solid move and needed to occur; however, there doesn’t seem to be a real apology or official statement regarding the immense grievance that was created.
“Steinhoff needs to act fast and communicate its true financial status immediately. The company may never recover from this type of cancerous error but it can continue to communicate and work ethically to resurrect whatever shareholder investing is remaining. The company is saying it is providing additional financial information and, for its sake, it needs to be as clear and forthright as possible.”
Matt Horace, security and crisis management expert: “Steinhoff is struggling in every imaginable way to manage the balance between crisis communication calamity and the realities of its condition. It has consistently over-communicated in an inconsistent manner, it is unable to keep an executive to run the company, its stock has fallen as much as 82%, it is under investigation by the [German] government and an independent entity and it appears to be checking all the wrong boxes.
“The company hired PwC to launch an independent investigation, named Chairman Christo Wiese, the company’s largest shareholder, as interim CEO, and appointed a subcommittee to bolster the independent governance of the business. Steinhoff indicated it was Mr. Wiese’s role to conduct a detailed review of the process. In [announcing the resignation of] Mr. Wiese…Steinhoff, in another inconsistent message, said he stepped down ‘to reinforce the independent governance of the company,’ and that its supervisory board accepted his resignation ‘to address any possible conflict of interest that may exist.’ Mr. Wiese was the second CEO to resign within two weeks.”
Write to Ben DiPietro at firstname.lastname@example.org, and follow him on Twitter @BenDiPietro1.