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What Went Wrong at Steinhoff International?

The events over the past week (4th to 8th of Dec 2017) about the possible destruction of Steinhoff International, poses many potential risks. Approximately 130 000 employees’ employment are being put at risk, an unknown number of Investors are losing a large percentage (more than 80%) of their portfolios held in Steinhoff International’s shares, the reputational damage suffered by South African organisations as secure and well governed investment opportunities, and lastly the unknown impact on the sustainability and / or immediate cashflow of suppliers. These and many other questions has triggered the thought, what went wrong at Steinhoff International?

Looking at Steinhoff International’s code of conduct as published on their web site, and with specific reference to paragraphs 1.1 and 1.2 as indicated below,

⦁    “This Code of Conduct has been adopted by the management board of Steinhoff International Holdings N.V. (the “Company” and the “Management Board”) pursuant to clause 7.2 of the Regulations of the Management Board. This Code of Conduct applies to all employees, officers, temporary employees, Managing Directors and Supervisory Directors (collectively referred to as the “Employees”) of the group of companies managed by the Company (the “Group”). 

⦁    The Group, including each subsidiary and affiliate, must comply with all of the legal obligations in each country in which it conducts its business. The Group also depends on the trust and confidence of its customers, suppliers and other third parties which it must safeguard at all times inter alia by acting fairly, honestly, with integrity and as a good corporate citizen. This Code of Conduct reflects the compliance principles of the Group. The Group requires each Employee to act in all cases in compliance with this Code of Conduct in the performance of their duties”.
We can now address the question whether Steinhoff International’s Executive Leadership contravened their own code of conduct in that;

⦁    the principals of good governance is / was lacking,
⦁    the integrity and honesty of Executive Leadership in Steinhoff International is questionable and
⦁    has the Executive Leadership been acting fairly in all their dealings?

Although the term Executive Leadership encompasses all the executives, we are not saying they are all implicated, yet only time will tell who are the direct “culprits” if there are other than those who have resigned and perhaps followed the easy way out. The question here again is whether the Executive Leadership would have allowed this kind of exit should any of the other employees have contravened the code of conduct?

Could Values Excel or Destroy an Organisation Such as Steinhoff International?
It has been mentioned that an actively disengaged employee / leader is like a well-trained and motivated terrorist, able to destroy your entire organisation. Contrary to this, the fully engaged employee / leader has been proven to be infinitely more productive and value adding than those employees / leaders seen as “only just engaged”. The fully engaged employee / leader is the one whose behaviour reflects the values, ensures excellent customer service resulting in return business and consequently enhanced and sustained business growth and profitability.

The question we therefore need an answer to, is: How on earth do leaders ensure that their employees are engaged and adding the value they can reasonably expect of them and what does this have to do with values?

The level of employee engagement in a business is directly linked to the existing organisation climate (“how we feel to work here”). Climate consequently, is a direct outflow of the business’ culture (“the way we do things here”). The logical question now is: If the prevalent climate is a direct outflow of our culture, what is causing the prevailing culture? The answer to that would be, the organisations’ values. The enactment of these values manifests in behaviour and the collective behaviour of the organisation’s employees, with emphasis on senior leaders, determines the organisation’s culture, which creates the climate.

So, what are the values of an organisation and what is the intended meaning of each value and how does the enactment of these values in an organisation relate to how your employees are engaged? Does an organisations’ performance perhaps beg an understanding to the answer to this question? The Engagement-Profit chain explanation below, provides some answers.

Employee engagement can be described as the emotional commitment an employee has to the organisation and its goals, resulting in the use of discretionary effort. An employee’s discretionary effort results in the Engagement-Profit chain. Because of a positive organisation climate, employees care more, are more productive, give better service, and even stay in their jobs longer. All that leads to happier customers, who buy more and refer more often, which positively drives consultations, sales and profits, finally resulting in an increase in the value of an organisation. Figure 1 below from “Employee-engagement-2-0-Performance-Real-World”, illustrates how employee engagement has a direct impact on the organisations’ bottom-line.


 

 

Kevin Kruse (2012), indicates that twenty-eight (28) research studies show that there is a direct correlation between employee engagement and:

⦁    Service,
⦁    Sales
⦁    Quality,
⦁    Safety,
⦁    Retention,
⦁    Profit and
⦁    Total Shareholder Returns.

Are the values of an organisation and the enactment of these values providing a sound foundation to sustainable business results?
It deserves to be mentioned that some believe climate can be determined by following your gut – which at best, is quite inaccurate. Climate can however be measured, monitored and managed very precisely and good practice suggests that it is done on an annual basis.
Where leaders follow a “dualistic” value system e.g. values applicable to the larger organisation and values applicable to leadership (individual or collective) the risk exists that the organisation could implode. In the case of Steinhoff International, this seems to have been the case where Executive Leadership (generalised) followed a value system of dishonesty, deceit, poor governance and unfair business practices.

The conclusion to the recent events at Steinhoff International, suggests that the Executive Leadership has not been fully engaged, as they would expect their employees to be.

A disengaged Executive Leadership could therefore be the reason for… “what went wrong at Steinhoff International?”

Dr Dennis Farrell                                                      Murray Burger
044 874 4256
www.alfaomega.co.za

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