Governance in Brief
July 4, 2019 | Editor: Martin Wennerström
Corporate scandals place South African audit firms under spotlight
South African sugar producer Tongaat Hulett reported that one of its former executives is under investigation for alleged involvement in the accounting scandal which led to the firm’s “temporary delisting” on June 11, 2019. The Durban-based company announced on May 31, 2019 that it would restate its 2018 financial statements based on a review which “revealed certain past practices which are of significant concern” and resulted in an overstatement of its financial results of up to USD 318 million. Reports have emerged that the embattled company could now seek to recoup bonuses that were paid to executives based on inflated profits.
The developments occur as the country grapples with the massive accounting fraud at retailer Steinhoff International Holdings NV. A PwC March 2019 investigation into the latter revealed “fictitious and/or irregular” transactions amounting to EUR 6.5 billion. South Africa’s accounting watchdog is now investigating Deloitte’s work for both Steinhoff and Tongaat, having reported that it is considering measures to strengthen auditor oversight. With Enron’s 2001 collapse having led to the enactment of the Sarbanes-Oxley Act in the US, it remains to be seen whether these events will lead to a similar tightening of regulation in South Africa.
Elliott confirms stake in Bayer
On June 26, 2019, activist investor Elliott Advisors confirmed a USD 1.1 billion stake in German healthcare and chemicals conglomerate Bayer, sparking new speculations that it could push for a major overhaul. While Elliott holds only 2% of capital, the German legal system confers certain rights to minority shareholders, with the ownership of one share granting the right to submit proposals and file countermotions. Renewed speculations that Elliot could make radical demands are strengthened by a 2018 activist campaign at German steel and engineering conglomerate ThyssenKrupp, which saw the CEO and Chairman resign within months of Singer revealing a stake of less than 3%. Notably, reports that surfaced in December 2018 indicated that Elliot could demand that Bayer split into two separate business entities and simplify its structure, following a recent German trend of breaking up conglomerates.
Embattled Danske Bank faces new hurdle
On June 24, 2019, Danske Bank announced that it had dismissed executive board member and head of its Danish banking division Jesper Nielsen after having concluded that around 87,000 customers had been overcharged for its investment product Flexinvest Fri. Nielsen had served as the Danish bank’s interim CEO until May. The ousting occurs as the bank struggles with the fallout from the massive money laundering scandal involving its Estonian branch, which led to the resignation of CEO Thomas Borgen in September 2018 and the ouster of Chairman Ole Andersen in November 2018. The magnitude of Danske’s misconduct also prompted Danish lawmakers to propose an eight-fold increase in money-laundering fines, and reinforced calls for stricter oversight of the European banking sector.
Japan witnesses rare proxy battle
Japanese housing equipment maker LIXIL Group Corporation (“Lixil”) ended a month-long turmoil at its June 25 AGM, as shareholders restored CEO Kinya Seto to office and elected six nominees the latter had proposed on an alternative slate. After having abruptly resigned in October 2018, Seto had been replaced by member of the founding family and former chairman Yoichiro Ushioda. This prompted several large investors to call into question the circumstances surrounding Seto’s departure, and eventually demand Ushioda’s resignation. The seats on Lixil’s 14-strong board are now held by two candidates endorsed by both Seto and the company, with the remainder equally divided between candidates proposed by each of the two. The proxy battle’s outcome is widely perceived as a triumph for minority shareholder rights in Japan.