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EDINBURGH — Markus Jooste, the man who led global retail giant Steinhoff through an extraordinary global acquisition strategy, was much fêted in investment circles until it emerged late last year that the company’s books had been cooked. As Jooste stepped down, the Steinhoff share price crashed. Since December, Steinhoff has been teetering on collapse. How did Jooste manage to pull the wool over investors’ eyes for at least two to three years? In this article, University of Stellenbosch Business School academics put Jooste’s personality under the microscope. They also explore how it is possible for people who believe they are respectable, ethical and honest to lose their way in the business environment. There are many more Joostes out there, they caution in the latest in their series on the Steinhoff scandal. – Jackie Cameron
By Brett Hamilton, Marius Ungerer, Daniel Malan and Mias de Kler*
In this section, we address two intriguing leadership questions as they relate to the Steinhoff case:
- In what way is charismatic leadership ambiguous?
The Greek word ‘charisma’ (plural: ‘charismata’) means to be endowed with a superhuman gift of divine grace. In secular terms, it refers to a special gift that distinguishes certain leaders from others, imbuing them with extraordinary power to sway institutions and the public at large.
Research has shown that for someone to be considered a ‘charismatic’ leader, a combination of three elements is required: extraordinary qualities that are inherent in the person in question; a social situation that provides the ideal setting for the rise of such a leader; and a particularly strong emotional bond between the leader and his or her actual or potential followers.
To make definitive claims about Markus Jooste as the ‘charismatic’ leader of Steinhoff requires more information than is currently in the public domain. Ideally a traditional research method like conducting structured interviews among a representative sample of people is required to augment and possibly correct what has already emerged from published interviews with Jooste himself and some of his co-workers.
In this section, however, we simply analyse what is already known about Jooste and his leadership style at Steinhoff. Of interest is the fact that the three elements (mentioned above) that are necessary for a charismatic leadership style to take root and thrive were in fact present when Jooste was at the helm of Steinhoff.
In the first place, Markus Jooste was not seen as just another entrepreneur. In retail circles he was called a “retail star” who was “charismatic”. He was also frequently hailed as a business genius who might even have been viewed by some as South Africa’s top businessman owing to his extraordinary deal-making talent. To his credit he led an aggressive international expansion and acquisition drive to build an international giant which was unsurpassed in the history of South African business.
With each step that he took, Jooste was recognised for his charisma and intelligence and for successfully raising significant amounts of capital and engaging in a dazzling array of equity swops. The relentless stream of expansion projects, the steady growth in off-shore income as a proportion of overall earnings, off-shore listings and a rising share price created and reinforced Jooste’s image as a superhuman businessman. His sometimes unconventional tactics were driven by a seemingly unshakeable self-confidence, while his image as an extremely wealthy individual, replete with race horses, exclusive properties, a weakness for polo and a not-so-secret extramarital relationship with a beautiful woman, completed the picture of this ‘charismatic man’.
Secondly, the social situation in which Jooste rose to prominence had two primary influences.
The first was the rise of a new class of Afrikaans entrepreneurs who emerged after 1994. Jooste came from humble beginnings but grew up during a time when professionally minded and educated Afrikaans entrepreneurs were starting to take advantage of the political freedom and economic opportunities of the post-apartheid and post-sanctions era to build extraordinary businesses and amass substantial personal wealth.
The second influence was Jooste’s friendship with key business people like Christo Wiese and many others in the public eye. In their book, Leadership: Enhancing Lessons of Experience, Richard Hughes, Robert Ginnett and Gordon Curphy remark that “attributions of charisma will spread more quickly in organisations having well-established social networks” than when a leader attempts to act by himself or herself.
The myth of a Stellenbosch mafia who meet in secret and control the economy is just that: a myth, which is sometimes peddled for political expediency. There is nevertheless no doubt that Markus Jooste’s charisma was in part built on and reinforced by a strong business network – inside Stellenbosch and beyond – which put its trust in him and afforded him extraordinary status in business and social circles. In an interview with biznews.com in 2017, Jooste claimed that ten of the other executives at Steinhoff were his best friends. It is a fact that many investors in Jooste’s network of close allies persisted in holding onto Steinhoff shares, even when a stage had been reached when the tangible net asset value represented only 15% of the actual share price.
Thirdly, Jooste had loyal followers. According to Hughes, Ginnett and Curphy, the desire and ability to follow are among the manifestations of an emotional bond that encourages people to defer to the authority of the leader. In keeping with the origin of the word ‘charisma’, this attribute has been applied to Jooste in religious terms. For example, various business people have been quoted as saying that he had a “legion of disciples”, many people “worshipped him unquestioningly” and he shared in “our national religion of celebrity worship”.
As with any sect, there was a strict line drawn between, on the one hand, fiercely loyal insiders who enjoyed social and financial privileges through their close association with Jooste and, on the other hand, circumspect or suspicious outsiders who did not make it into the Steinhoff inner circle or benefit from Jooste’s largesse.
From the narrow perspective of Markus Jooste fitting the description of a charismatic leader, it is perhaps understandable (though still not acceptable) that Steinhoff fund managers and directors failed to remain alert and exercise proper oversight. Charismatic leaders, who are typically intent on promoting self-enrichment and advancing the interests of their network, draw those close to them into a web of loyalty and submission. By surrounding themselves with admirers, such leaders acquire the latitude to act in certain ways and to conceal possible unethical behaviour without any critique or push-back from colleagues.
A universal truth, which is applicable to politics, religion, business and many other disciplines, is that only a small minority of people can foresee the impact of looming danger before disaster strikes. Only afterwards are people’s eyes opened to how risky the situation had been and what could have been done to avert or minimise the damage. In this sense, those who supported Steinhoff up to December 2017 demonstrated once again how easily humans – even very educated ones – can be misled, particularly in a society that is very approving of and derives enormous personal satisfaction from financial wealth.
Society has benefitted from charismatic leaders in a great many spheres: Martin Luther King and Nelson Mandela in politics, Mother Theresa and Desmond Tutu in religion, Albert Einstein and Stephen Hawking in physics, and so forth. The same is true for many business leaders who have built prosperity for millions of people in a legal and ethical manner.
However, it is important to remain alert to the possible ambiguity and danger of charismatic leaders. For every Mandela there is also a Hitler, a Verwoerd and a Mugabe. There is a risk that charismatic leaders will become arrogant and believe that they are so extraordinary that ethics and the law do not apply to them. The Steinhoff debacle is a reminder that charismatic leadership can lure people, sometimes unknowingly, in dangerous directions.
- Why are good executives lured into corruption?
The Steinhoff story and the apparent involvement of (previously) highly regarded business leaders such as Markus Jooste and others raise many questions: Why does this kind of thing happen? Why do upstanding people resort to misrepresenting information in ways that are at best ethically questionable and at worst corrupt or fraudulent? What goes on in the minds of successful executives who do not need the money but still engage in corrupt activities? The latter question is described by Peter Fleming and Stelios Zyglidopoulos in their article, ‘The Escalation of Deception in Organizations’ as the “misuse of an organisational position or authority for personal gain or organisational gain”.
- Psychological drivers underlying unethical conduct
There are a number of drivers that could potentially push successful executives with apparently good morals and values down the slippery slope of unethical conduct.
- Financial greed? Or power and status?
The obvious explanation for executives engaging in acts of corruption is financial greed. However, this is an oversimplification of a much more complex situation. Greed itself is not only a financial matter. Although money might still be the eventual target of corrupt activities, greed is not so much about money as what it represents: money is a symbol of power, status and success.
Thus in the case of a rich and successful executive, corrupt behaviour is driven less by rational cost–benefit calculations than by the symbolic value of power and success. Addiction to the power and status that money provides must be fed continually.
In her book, The Perverse Organisation and its Deadly Sins, Susan Long says that the accumulation of ever-increasing wealth is a source of perverse pride in one’s ability to feed the hungry beast of power, status and a lavish lifestyle.
- Pride and arrogance
This perverse pride is accompanied by a level of arrogance that prompts the executives in question to ignore some of the realities that surround or threaten them. According to Long, smart executives who became very successful early on in their careers (such as Jooste when he became the financial director of Gommagomma at the age of 27) easily develop the belief that they are invincible because of their remarkable qualities or accomplishments.
In the view of Owen Skae, Rhodes Business School director, Jooste apparently believed that his early success could be replicated time after time, notwithstanding new and increasingly challenging circumstances. He started to buy shares and companies. When the promised returns failed to materialise, his solution was to acquire an even bigger company in which losses could be absorbed or made to disappear. This created a vicious cycle of more and more ambition and financial investment being channelled into business deals, with less and less success.
What was conveniently ignored was that a multinational organisation was being created with an unprecedented level of operational and managerial complexity, little or no focus or integration strategy, and problems in converting earnings into cash flow. Yet in amongst these challenges, the desire for more simply grew. Could Jooste’s boast that “every competitor of Steinhoff in my 29 years, we either own today or they are bankrupt ‒ all of them” (reported by Giulietta Talevi in her article, ‘Inside the mind of Markus Jooste’) have been a sign of unhealthy, slightly unhinged arrogance?
Clearly, rampant managerial ambition, hyperactivity and arrogance became hallmarks of the Steinhoff operation. Although Jooste was not the founder of the company, he behaved as if Steinhoff and its assets belonged to him personally. This is evident in Jooste once subjecting an MD of one of the Steinhoff companies to a humiliating public tirade after which he told the MD to “get out of my f***g factory”.
Pride and confidence are not de facto undesirable characteristics. In fact, leaders need a healthy dose of narcissism to be successful as it affords them the psychological energy that drives leadership. However, dysfunctional, narcissistic traits such as entitlement, grandiosity, arrogance, hubris and self-absorption can seriously impede morality. There is a light-hearted saying that the difference between God and any narcissist is that God does not think that s/he is a narcissist.
Fantasies of transcending an average lifestyle can push talented and charismatic individuals towards greatness, but the frustration of not attaining cherished dreams can lead to acute psychological stress. For some, it may trigger an even greater sense of urgency to accomplish goals, which could fuel opportunistic corruption because of narcissistic illusions of indemnity. A lack of restraint makes narcissists susceptible to an egocentric sense of entitlement and being above the laws and scrutiny that apply to others. Their authority becomes perverted.
Ken Lay of Enron, who is often touted as the quintessentially dysfunctional narcissist, was found guilty of many of the things that Jooste and other Steinhoff directors are allegedly culpable of, such as misrepresenting and misreporting financial information, restructuring or disguising debts to convey an impression of legislative and regulatory compliance, and engaging in various forms of corruption.
Before making hasty judgements, we should acknowledge that CEOs and other executives typically work very hard, putting in exceptionally long hours to build and manage the organisations they were appointed to lead, and dealing with responsibility-induced pressures and stress. They are often required to make sacrifices in their personal lives and relationships. For instance, it has been claimed that Markus Jooste had a punishing business travel schedule, spending more nights on planes between South Africa and Europe than in his own bed.
However, when not reined in on the morality front, such commitment might manifest as narcissistic notions of entitlement – “I work so hard and sacrifice so much for the organisation, I deserve more”. Corruption is a crime of entitlement, committed by those who cannot grasp that they should act as responsible members of a wider community. Instead they nurture the belief that they are superior to and more worthy than the rest of society.
Culpable executives may claim, and at a subconscious level believe, that they have earned the right to the proceeds of corrupt activities because they have scored points (relating to effort, ingenuity or largesse) that somehow make them more deserving. Imbued with a warped sense of entitlement, such executives often put on an elaborate display of self-righteousness, seemingly impervious to the mounting evidence against them.
Entitlement, like power and status, is a hungry beast that needs to be fed, which is why one corrupt act often leads to another. In an atmosphere of rampant self-indulgence, normal risk assessments are often overlooked. When no attempts are made to hide such self-indulgence, the desire (indeed pressure) for power, money and prestige simply grows, sometimes to the point of carelessness.
Although Jooste was notoriously private when it came to engaging with the general public, the trappings of his extravagant lifestyle (from expensive properties to prizewinning horses) were nevertheless in full view of the world. Like many others who have landed in the pound seats, Jooste was on a psychological high, luxuriating in people’s admiration of him and his success.
- Rationalisations explain the decline of moral character
One of the general assumptions in psychoanalytic and system psychodynamic theories is that people generally have a desire to be ethical. Except for psychopaths, most people are not inherently unethical; instead they strive to be good and moral. The reality, however, is that people tend to have an inflated view of their morality and they are not as ethical as they would like to think.
More often than not, corrupt activities start on a small scale, with little or no malicious intent. There might be an apparent justification for behaving in a somewhat dubious manner, e.g. to finally close an important deal that will make a difference to the company, to boost profits in order to satisfy shareholders or to accelerate one’s climb up the career ladder in order to be a better provider at home. But if the first transgression goes undetected, it creates space for more unethical acts to follow. Not getting caught can be reassuring and a bit intoxicating and can lay the foundation for a repetitive cycle of unsavoury behaviour.
As the transgressions multiply, people’s internal moral compass ‒ in other words, conscience ‒ is likely to send warning signals that something is going wrong, triggering feelings of guilt. However, research has shown that often guilt does not stop the corrupt behaviour. Instead, people erect psychological defences, such as rationalisation and denial, to subdue the feelings of guilt and allow the errant behaviour to continue.
Rationalisations are the main reason why ethical people might drift into corruption. They enable transgressors to convince themselves and others that they are not actually corrupt and that their actions are justified and acceptable, e.g. “everybody does it, it is part of doing business”. Rationalisations dull people’s awareness of the nature and impact of their transgressions, which then often gain momentum. Viewed from two different extremes, too little rationalisation does not assuage the feelings of guilt, while excessive rationalisation gives the green light to an escalation in the scope and severity of transgressions.
There are three rationalisations commonly associated with unethical business conduct:
- “There were good intentions, with no identifiable victim”
Our unconscious minds have a cunning ability to effectively create self-deceiving delusions of indemnity and redemption which supersede reality.
When still engaging in ‘small’ and ‘less serious’ acts of corruption, offenders tend to rationalise the intention behind the transgression in order to subdue their conscience. They claim that their intentions were “never meant to harm anyone; I was only trying to do good for the company, employees and shareholders”.
Alternatively, they claim that it was always their intention to correct the fraudulent activities later ‒ they were just providing a temporary solution to a problem. But this never happens, until the offender is found out. Sometimes euphemisms are used to make corrupt acts sound more acceptable, e.g. fraud is sometimes referred to as “accounting irregularities”. In his note to employees, Jooste attempted to use this tactic when he said that “accounting irregularities” had prevented the finalisation of the “year-end audited numbers”.
Through rationalisation, offenders deny the consequences of their wrongdoings or play down the extent of the damage caused. While Jooste was engaging in “accounting irregularities”, no one apparently suffered directly from it – at least not at the time. Offenders might also attempt to show that their transgressions pale alongside others. Although the Steinhoff saga is being viewed in some quarters as one of the worst cases of business fraud that the world has ever seen, it might be argued by those implicated that the effect on the average man in the street is likely to be very small.
The absence of identifiable victims further fuels the no-injury argument. It is very likely that the fantasy of a victimless crime was peddled in the case of Steinhoff. While there have been allegations of ‘cooking of the books’, no specific individual could be identified as suffering directly. Business corruption on a grand scale occurs more easily when the ‘victims’ are faceless shareholders and pensioners. It facilitates emotional disengagement from the unethical conduct and neutralises guilt and anxiety.
Corruption breeds corruption; a small amount embezzled but undiscovered represents the crossing of an important moral boundary. Once the boundary has been breached, it is easier to cross it again. Corruption can soon spiral out of control, both in frequency and severity, and it is never without victims. Those harmed may just not be aware of it until the rot is exposed.
- “It is not illegal”
The link between ethics and the law is complex. As a general rule the law – if not inherently unjust or unfair ‒ is the minimum ethical standard below which one should not go. At the same time being an ethical company or business person requires much more than simply not being found guilty by a court of law.
A powerful type of rationalisation is the justification of unethical or corrupt acts on the basis that the deeds in question are not illegal ‒ at least not according to the strict letter of the law ‒ and are therefore acceptable, notwithstanding the moral implications. Some multinational companies exploit differences in labour laws, environmental requirements and tax regimes, especially across different geographical jurisdictions. This creates ethical grey zones where it is easy to hide behind regulatory discrepancies.
The details still need to emerge, but from what is already known it appears that a major contributing factor in Steinhoff’s ethical and legal problems was the controversial way in which the company managed its tax affairs. The line between tax avoidance (technically legal but often ethically questionable) and tax evasion (illegal) is seductively thin.
The company underwent a series of inspections by a host of regulatory bodies. Yet as early as 2007 there were warning signs and questions raised as to why Steinhoff’s accounts lacked pivotal information about where the company was generating revenue and why it appeared to focus on tax breaks rather than on the actual business. Perhaps this could be described as smart management, but when does smart tax avoidance mutate into shrewd and unethical tax evasion? Of course, what happened at Steinhoff might well extend way beyond minor tax issues into the domain of serious accounting fraud.
The finer details of the Steinhoff case, once forthcoming, will be very revealing. The general point being made here is that rationalisations in the context of ‘legality’ often create the space for fraud to occur. Self-deception – even when linked to highly questionable morals and deliberate attempts to misrepresent the facts ‒ is allowed to flourish when a breach of legislation cannot be proved. In the absence of negative legal judgements and confirmation of criminal acts, perpetrators are prone to feeling vindicated and even emboldened to carry on as before.
- “It was done for the greater good”
Paradoxically, corruption may also be justified on the grounds that it supports higher-order ideals, such as growing the organisation to become more profitable and sustainable and create more jobs. However, organisational ideals and the pursuit of apparently worthy causes can inflate narcissism, offering management a level of protection against reality. As a result managers may start to believe that accepted norms can or should be sacrificed to attain higher-order values. For example, when paying a bribe to a public official to secure a contract, or hiding losses or inflating profits on paper, the rationalisations might be: “I’m growing the company”, “I’m protecting shareholder value in line with my mandate” and “I’m protecting jobs”.
Those who have a utilitarian mind-set can easily be persuaded that the end justifies the means.
- Final thoughts
In this section we attempted to examine the psychological drivers behind and effects of unethical or illegal business behaviour, showing that this does not necessarily signal a predisposition in certain types of individuals. What happened at Steinhoff could happen at any number of institutions. Human morality is fragile, notwithstanding most people’s good intentions. Unconscious processes regularly lead individuals to engage in ethically questionable behaviours which are inconsistent with their visible characters and inherent beliefs.
Human beings are conflicted ‒ capable of great integrity and kindness, but also prone to envy and temptation. There is no getting away from the fact that everyone embodies a mixture of good and bad. Freud described this relentless internal conflict between good and bad as the “tragic fate of humanity”, with fallibility being a normal part of the human experience.
Let us therefore not judge Steinhoff and Jooste from atop a moral pedestal, confident in the belief that this could never happen to us or our organisation. Even the most moral of intentions can be undermined by an unconscious counter-will, which then triggers a moral collapse. We cannot ignore the fact that there are potential Steinhoffs and Joostes in every corner of society.
- Brett Hamilton holds an MBA from the University of Stellenbosch Business School where he is a visiting lecturer in Corporate Finance. He is also a director of First River Capital.
- Marius Ungerer is Professor of Strategy at the University of Stellenbosch Business School.
- Daniel Malan is Associate Professor of Corporate Governance and Head of the Centre for Corporate Governance in Africa, based at the University of Stellenbosch Business School.
- Mias de Klerk is Professor of Leadership and Human Capital Development, and Head of Research at the University of Stellenbosch Business School.