Original subtitles

Steinhoff, this company that was worth R200-and-something billion

that just vanished overnight almost.

And it's South Africa's Enron. That's what it is.

[Pieter du Toit] Was I surprised?

Yes, because you don't think that a company of that size and of that repute,

can crash so quickly.

Whatever he's got, he should hand it over...

because it was ill-gotten gains.

He needs to pay the price.

I think he got addicted to the lifestyle, the money, the fame.

[Bernard Mostert] Maybe it’s about too fast, too furious

and too little accountability and too little pushback.

How could one person do so much damage and not be willing to be held accountable?

The loss is the loss of pension moneys, of investments, huge amounts.

[Christo Wiese] There is no foolproof protection

against a CEO who is a crook.

If you are going to achieve success at all cost...

what about the cost? You know what I mean? There is a cost.

It's people's lives.

[Alec Hogg] There were just two things he was interested in.

The one was his business, Steinhoff,

and the other one was horse racing.

[reporter1] shockwaves in corporate South Africa.

There were accounting irregularities...

[reporter2] accounting irregularities...

[reporter 3] Insider trading...

and possible tax fraud.

[Tshepo Kgadima] Earnings that do not exist.

The South Africa retail giant lost billions from its market value

on the JSE and in Frankfurt.

[reporter4] Dark days lie ahead for Steinhoff and its CEO, Markus Jooste.

[reporter5] Investors want answers.

[reporter6] Steinhoff's struggle is going to go down African corporate history.

[reporter7] Jooste will also most likely face criminal charges.

[Markus Jooste] I never lied about the activities of the company

as the allegation was made. Obviously they're pointing fingers at me.

[Rob Rose] These things are never a linear trajectory

where somebody sets out to swindle the world.

One small mistake is made and then rather than fess up and admit to it,

somebody makes that fatal step at that pivotal moment

where they decide to cover it up and the hole gets deeper and deeper.

And that's what happened in this case with Steinhoff, the collapse of Steinhoff.

That happened with Bernie Madoff.

It happened at Enron. It happened in all the big companies.

It was a series of small little decisions made

that ultimately led to a giant crisis.

I've been a financial journalist for a long time, two decades, pretty much.

I studied law.

I think you're all young and idealistic in those days and you think,

you know, you’ll help society and make things better and then

I realised that it's quite a hierarchical industry

and it'll take forever to get anything done. And I’d loved writing

and I thought that's a way to cover stuff, to write about things in the world.

Hopefully make it better, see faster change. And it was... it was fun.

And I got into business journalism because I’ve always found it fascinating

to look at companies that are misrepresenting the truth.

I think the media tends to focus on holding politicians to account,

but very few people hold corporations to account.

A lot of corporate leaders do things that are completely outrageous.

But because so few people study it and understand it,

they get away with a lot which politicians don't get away with.

So I've always been drawn to the stories of people like Markus Jooste.

For a journalist, this was the story of a lifetime.

It was the sort of thing I felt had to be put down in a book.

We're still covering the Steinhoff story as it unfolds.

More and more evidence of shenanigans are coming out almost every day.

[line ringing]

[automated voice] The telephone number you called is not available at the moment.

Please try again later.

[sighs]

I don't think he answers anyone's calls. [slight chuckle]

I was a little worried that he's gonna answer.

"Hello, Markus."

One of the guys I spoke to

told me that Markus was perfect for the role he ended up as.

You take people who are born into relatively poor surroundings,

who are ambitious and super smart,

and you've got the makings of somebody who can do fantastic things in life.

And I think that was Markus's upbringing in a nutshell.

His father worked at a post office in Pretoria.

And Markus went to a great school, Affies, Afrikaanse Hoër Seunskool.

[male choir singing] ♪ From Pretoria, the call rises ♪

♪ To proclaim with a thousand voices For you, Afrikaans! ♪

[crowd chanting]

[Rob Rose] Markus, he was smart, but he wasn't the smartest student around.

The way he tells it, his father was super supportive,

was always there, would help with the homework,

and it was quite a nurturing environment, even if it wasn't the wealthiest.

Right next to the post office was a betting shop, Tattersalls.

According to Markus, his dad would give him money to go and place bets.

[race announcer] Set for the Turffontein Classic, R500 000 at stake

and away they go.

My father was a very...

committed punter with horses

and when I grew up,

I regularly visited Tattersalls with him on a Saturday to go racing.

In South Africa in those days you still listened to the race on radio,

in the halls there. So I grew up with that.

[race announcement continues, fades]

[Alec Hogg] I think if you grow up poor

and you get caught up in the pageantry, and the splendour and the pomp

of the horse racing industry

and then see the people who dominate it as being almost royalty,

then it would be an aspiration to rub shoulders with them one day.

Markus Jooste was one of the great South African entrepreneurs

for everything that we knew.

He'd built a company from a very small start, into a multinational.

[podcast host] This touched almost everybody

who's an investor in this country.

Markus Jooste... What is his greatest worry?

[Alec Hogg] His worst worry would be ending up in jail in South Africa.

- Long jail time. - Mm.

That's Mr Joos-tee.

I guess being an entrepreneur myself, I was attracted to that kind of personality

in that he could teach you a lot.

Markus is very clever.

He's got his obvious deficiencies, but being an idiot isn't one of them.

[Pieter du Toit] He went to the foremost Afrikaans university in the country

and was accepted into arguably the most desirable men’s residence at Stellenbosch.

[Sizwe Mpofu-Walsh] There's been a book that has been setting tongues

wagging in our country and starting all kinds of furores and debates.

You may have heard about it, it's called The Stellenbosch Mafia.

It's people who use their expertise and influence

to the advantage of themselves and the people in their networks.

Every one of us, we're part of a network,

whether it is a school network, a university network,

a network at work, at church, or whatever the case may be.

And the networks in Stellenbosch emanate from the schools,

emanate from the university and residences at the university.

Going to school in Stellenbosch, going to university in Stellenbosch,

you were always very much aware of the wealth in the town.

And you were always very much aware of certain companies’ influence in the town.

So Stellenbosch’s role in the economy,

Stellenbosch’s role in the Afrikaner economy

has always been fascinating to me.

So Stellenbosch is one of the oldest towns in South Africa.

It is situated around 50km outside of Cape Town.

It's surrounded by beautiful mountains, scenery, vineyards.

It is home to one of South Africa's most prestigious universities.

It's the place where Afrikaner nationalism,

which led to apartheid as an ideology

was born and refined.

And then, post 1994,

it's become a place where a lot of millionaires have retreated to.

You know, it's so much easier to do business

over a glass of chenin blanc three o'clock on a Friday afternoon

before you go and watch the Stellenbosch University rugby team play later at night,

to strike a deal there.

But it's also an example of a town where, you know, the ultra-rich

co-exist with the ultra-poor.

So, the town of Stellenbosch carries the very visible scars

of historical, racial and economic segregation.

Jooste, he did come from a privileged background.

He was part of the elite at Stellenbosch.

He came into contact with enormously successful individuals

who made it big later in life.

So, you know, it's not as if it's a classic rags to riches story.

[Johann van Rooyen] I met Markus Jooste the first time in 1979.

We were starting at Wilgenhof Residence.

So, Johann, I want to say thanks so much for agreeing to speak to us about this.

So that particular time at Wilgenhof, it was the late '70s, early '80s.

Can you perhaps sketch a portrait of what the dynamics were?

[Johann van Rooyen] Yes. There was of course the initiation of first years

every year which, I guess, second years and third years could participate in.

A bit of intimidation and humiliation.

And I actually found some photographs in one of my albums

I took about five photographs in those three years.

Funny enough, in four of the five, Markus Jooste was right in the middle.

He was quite actively involved in... In helping to mete out the punishment.

Obviously the code in Wilgenhof was, "You never speak out about it."

And up to this day,

most Wilgenhoffers probably adhere to that code of not speaking out.

That was the culture of the time. You just don't talk to anybody.

I never even talked to my father about this.

I don't care much about that.

I mean, that's something of my childhood, 40 years ago.

I mean, that code of not speaking out is something that's,

you know, you can say is what happened at Steinhoff for so many years.

Yeah, exactly. Exactly. There's definitely a clear connection there.

[Rob Rose] Would it be fair to say it was very much a hypermasculine culture

at Wilgenhof at the time?

There was a there was definitely an element of...

what do they call nowadays? "Toxic masculinity".

You have to be strong, you know. You can't cry.

It was also not just because

we were full of adrenalin and so on, but it was also the fact that

it was the peak of the Afrikaner rule in South Africa.

Nobody ever questioned

your position on the top of this sort of socio-economic ladder,

as unjustified as it was.

That kind of power which we had as white, as Afrikaners,

in an Afrikaner, or a white-dominated country,

that sort of did give you some kind of sense of power, more than you deserve.

And, you know,

later on, I can presume that... That Markus did carry that with him.

Certainly the people who worked with Markus

would talk about, as a business leader,

how he was not averse to bullying either.

He would scream and shout, and certainly would throw his weight around.

And it seems that there's a synchronicity in the way he acted at Stellenbosch

and the way he'd later conduct himself in the boardroom.

[Dr Giada Del Fabbro] So, I got to know the information around Markus Jooste

in more detail when Rob Rose approached me

to get a more in-depth sense of who Markus Jooste might actually be.

It's just always fascinated me how some people could

cross the line in terms of what we collectively agree on

in society as mores and norms.

It would seem that he has a couple of masks.

Not only was he financially savvy,

he also would've been able to read people really well.

So his intelligence was also a social intelligence

where in order to charm people,

he would've had to have a good read on the person he was dealing with.

So, after studying at university, Markus went to the Revenue Service.

That is one of the options you had. Instead of doing national service

and fighting in the army and going to the borders,

you could choose to work at the Revenue Authority.

And I think that that gave him great insights into how tax works

and loopholes in the way that it’s structured.

Steinhoff famously paid hardly any tax.

It was paying 14% tax at a time when the country's tax rate was... was 28%,

which illustrates that Markus had a very keen eye for how the tax authority worked.

And it would seem that that relates to his early exposure to the revenue authority.

After that, he didn't want to work for other people,

he wanted to own his own business.

And that is how Markus Jooste got involved in Gommagomma in Ga-Rankuwa...

what was considered a homeland area,

in which the apartheid government

designated tracts of really inhospitable land to black South Africans.

The point about a homeland area

is it gave you massive tax breaks for investing there.

Gommagomma at the time made furniture, lounges, couches.

Gommagomma was a shambles, to put it bluntly.

They had warehouses all over the Ga-Rankuwa area

full of reject furniture, which they hadn't written off.

And that's when I met Markus Jooste.

What came across very strongly was Markus Jooste.

He would be the kind of guy who would always want to be in control.

I then continued to build my business.

And we built the company up

into the largest case goods manufacturer in the country.

Case goods is cabinet furniture.

Markus Jooste carried on running Gommagomma.

I think it got into even more difficulty.

[Rob Rose] So, I find the Steinhoff story really fascinating.

It began with Bruno Steinhoff.

He's the guy who created this company that we talk about now

that is synonymous with the word "corporate corruption" in South Africa.

One apple a day!

- Hi, I'm Rob. We met a few years ago. - Yes.

[Rob Rose] Bruno Steinhoff was born in the Rhineland in Germany.

This is shortly before the war.

My parents, you know, were farmers, and we were five boys.

And only one could take over the farm,

and I made a business by myself.

It was, for me, absolute heaven.

The big customers bought from me.

And so I developed very quickly a very, very big business

and my competitors, they had no chance for many years.

Part of the business was you would take goods from East Germany, back then,

at the time of the Iron Curtain,

take goods from East Germany and sell in West Germany,

and do these things that other people weren't willing to do.

Was that part of the success as well?

Absolutely.

I went always there in that direction in Europe where nobody wants to go.

[presenter] The wholesale, manufacturing and logistics business

was founded by Bruno Steinhoff.

With his entrepreneurial spirit Bruno dared to cross many boundaries

to find value and quality products

in places where very few were prepared to go.

The Steinhoff strategy of sourcing furniture from the East

to sell into a discount market in the West, proved successful.

So, I had productions in all East Europe.

I was then later in China, I bought furniture in China.

I was looking to increase the business,

to go in markets where nobody was

and to see and to find out with my nose,

"Where can we make in the future more business?"

So I went to South Africa.

[Rob Rose] So from there, what happened is he met this businessman called Claas Daun.

Claas Daun comes to him and says,

"I've met this fantastically smart accountant in South Africa

called Markus Jooste."

I thought that Markus is a very clever man.

And I saw in South Africa

a lot of opportunities to make a new business.

And Markus talked with me very, very open and I had a good relationship with him.

And I think we were good friends.

And I saw him as a son. Yes.

I had a good feeling with Markus, very good.

[Rob Rose] They decide to merge Gommagomma with Steinhoff.

This can be Steinhoff in Africa.

[presenter] Foreign investment opportunities presented themselves

and encouraged by the political change in South Africa,

Claas Daun orchestrated the partnership between Steinhoff Europe and Gommagomma,

establishing Steinhoff Furniture.

Steinhoff Europe and Steinhoff Africa consolidated.

A new era had begun.

[Rob Rose] Bruno was a very tactile individual. He understood furniture.

He understood tangibles.

Markus was a smart financier.

He understood accounting, he understood the finance side of the business.

So he believed that with Markus's financial background

and his strategic nous, they’d be able to do something more with Steinhoff,

to create the modern company we now know as Steinhoff.

[Alec Hogg] The business model appears very sound.

We make cheap furniture, or buy cheap furniture,

and sell it expensive into expensive markets.

Anybody can see there's a great arbitrage opportunity.

If you can make something in South Africa and sell it into Europe in euros

or Britain in pounds, there has to be a good margin to it.

The fact that we are concentrating on the discount sector of the market

has certainly benefitted us rather than the upper end or luxury end of the market

in our type of category.

Therefore, we are quite confident that we can continue the same type of euro growth

that we've seen during the past year into the new financial year.

Big economies going through difficult times...

Not a bad time to maybe invest.

[Rob Rose] So, Bruno found Markus a compelling individual,

and throughout the years he'd become closer and closer to Markus

and the trust grew immensely between the two.

Which is why he felt the betrayal was so much more acute,

because it was almost as if you’re betrayed by your own family.

Right throughout, Markus would help him manage his money,

he would help him in so many other facets.

At his 80th birthday in Westerstede shortly before Steinhoff imploded,

it was Markus who Bruno asked to come and give the main speech.

Which is why a week later, when it all came crashing down,

he felt the betrayal more acutely than, I think, anyone else felt it.

What a difference a day on the markets can make.

Just ask Steinhoff International.

The South African retail giant lost billions from its market value

on the JSE and in Frankfurt,

after its CEO, Markus Jooste, quit under a cloud.

It's a story that could have catastrophic consequences for corporates across Africa.

But just how did Steinhoff manage to pull a fast one

over investors for so long?

[Rob Rose] Steinhoff decides it needs money to expand.

So they debate what to do, and one of the solutions they decide

is listing on the JSE, Johannesburg Stock Exchange.

Which essentially allows you capital,

and it also brings you to the attention of numerous investors.

That's when the pension funds get involved.

They buy shares in it when it publicly debuts on the JSE

at about R4 a share, I think, at the time.

That's when the company becomes a public entity.

That's when it becomes more well-known.

Its name is now in the pages of the daily newspapers.

And then Markus Jooste becomes a feature of the corporate landscape.

[woman1] We had waited and waited for a music centre.

[man2] Only available at PEP and Ackermans.

[man3]...incredible Sensei Hi-Fi with...

[man4] Your Two Year Guarantee store.

♪ You've got an uncle In the furniture business... ♪

Most of our businesses have also had resilient performances.

I mean, the UK did well. So it shows

that that mass discount model is working.

[Alec Hogg] When you look back on it and you were analysing it

and you were saying, "How did it grow so rapidly?"

Well, he was always very focused, very meticulous, very driven.

He knew where he was going and the guy was real lucky for a long period of time.

For instance his purchase of Pat Cornick,

which is a very important part in the whole Steinhoff story.

Steinhoff was able to get them at an absolute bargain basement price.

[Graham Theobald] They started talking to me

about the possibility of merging the companies.

It would be a merger between Steinhoff South African operations and our company.

Bruno Steinhoff was there. I met him.

I have great admiration for Bruno Steinhoff and what he built.

And we came to an agreement which we shook hands on,

that we would pursue it

on the basis that we would have an exchange of shares.

And we would swap two shares of Steinhoff for one of our shares

because our value of our company was higher.

We're going to be hearing quite a lot of financial jargon as we go along.

So let's break down some of those terms.

When a company wants to buy assets, it could do so in a few ways.

It could pay cash, use debt,

or it could issue its own shares as compensation.

Those who receive these shares

become minority shareholders in the acquiring company.

It's a cheap way of doing business, especially if the share price is high.

And this is how Steinhoff did most of its deals.

As long as the value of those Steinhoff shares keeps going up,

everyone is happy with the transaction.

But if the shares should lose value by 97%, in Steinhoff's case,

they become virtually worthless and the people who took them as payment

incur massive losses.

But the story is far from over.

We will continue to follow the developments of what has been dubbed

South Africa's biggest corporate disaster ever.

From myself, Fifi Peters, it's bye for now.

[Graham Theobald] I was then called to another meeting

and told that the 2:1 share ratio

would not work.

And that it would have to be on a 1:1 basis.

One of the conditions was the fact that I would be appointed

the CEO of the South African operations, and they reneged on that as well.

In my mind, it became a hostile takeover

because I did not want to proceed on that basis.

And I tried to get out of the deal, but it was too far gone and I couldn't.

So the merger continued.

[director] Do you feel that you were screwed over by Markus Jooste?

I was screwed over by Markus Jooste. There's no doubt.

And I decided that was it. I was out.

[Christopher Rutledge] Markus was that kind of person,

somebody who wanted to win at all costs.

He wanted to be the Elon Musk of our time, to be the Bill Gates of our time.

He wanted to be somebody whose legacy was unquestionable.

The Gommagomma Group, as we started out as, was a very small entity,

almost like a fly on the wall, really would bother nobody.

But the acquisition of Pat Cornick was basically

like a fly swallowing, you know, a bird. It was really big.

Bringing together manufacturers was critical, was good, important and timely.

I particularly went into business because of Thabo Mbeki.

Thabo Mbeki called upon black South Africans to go into business

so that we can empower those who were previously disadvantaged.

And when I joined Steinhoff,

I was very much still an activist in a sense.

And I went in there, idealistically thinking,

we're going to contribute to building a new South Africa.

I was, and I admit this,

personally benefitting, so I was growing as a person.

I was growing financially.

I was, you know... There was a period of growth for me,

a very important period of growth in Steinhoff.

And so while that lasted, I suppose I was happy.

Yeah look, Markus was inspirational in many ways.

I mean, I looked up to him for many years

as being somebody who is completely focused

and who was obviously, from where I was sitting, achieving things.

And the nature of authority is, those at the top of the pyramid

set the culture in many ways.

One of the stories about the culture of Steinhoff at the time was trust.

Everything was about trust. Deals were done on a handshake.

They were not this massive volume of paper that you get with most transactions.

The insiders talk about how trust was the most fundamental part of the company.

And that's partly why the relationship with Bruno and Markus

was formed on this trust.

It wasn't one where you'd go and check the documents and emails you have

to see if this had been signed or not.

So, the game changes for Steinhoff. They decide that conventionally

they've been making furniture through Gommagomma.

What they decide now is that it might be an opportune time

to own the entire supply chain.

It wants to have forests that you can use the wood for the furniture.

It wants to own the supply chain

that delivers that furniture to people and the retail shops.

That's ultimately the goal.

[Zwelakhe Mnguni] Steinhoff was always the stock that... We don't understand it.

When we did an analysis of their share options,

we never thought it, um...

it's a good quality business.

One of the things we observed from our side was the low tax rates.

In the 2016 annual report,

Markus Jooste writes that the tax rate will remain around 15%.

Now, if you're a company operating in the 28% tax jurisdiction,

how are you able to maintain a 15% tax rate on an annual basis?

So, these are some of the issues that shareholders,

in South Africa and elsewhere in the world, need to ask questions about.

[presenter] The manufacturing, sourcing,

and logistics business that was founded 50 years ago is now part of a listed group.

Its entrenched global presence still benefits greatly

from the diversified vertical integration strategy.

To manufacture and source furniture and homeware from low-cost countries

and to sell these products to value-conscious consumers.

They came out with a story of "vertical integration".

Because they were going sideways, and they were dabbling in this.

And for the first time it sounded to us

that they are finally addressing one of the big concerns that we had...

Execution and growth risk.

We felt they were gonna address that now,

because now they're gonna manufacture, transport, and retail, right?

And it kind of made sense.

We kind of allocated some capital, but it was a significant underweight.

If the stock in a market that's concentrated, like South Africa,

if the stock is not attractive, or is average quality,

what we'd do is we'd hold it at an underweight.

In the global markets we're a bit more purist

because the depth and the opportunities set is much bigger.

So if Steinhoff was operating in the global setting,

we wouldn't even own that stock.

We had a small allocation but never stepped it up.

[Graham Theobald] He managed to spin the web

in such a complex way...

that it was just extremely difficult

for people to understand exactly

what was going on, really.

Because of Markus Jooste’s incredible ability to persuade people.

That's his biggest asset.

You know? I mean, let's face it, he managed to persuade Christo Wiese.

[Christo Wiese] When I looked myself in the mirror

after the terrible news from Steinhoff,

I decided I will have to find clear guideposts to get through this one.

Number one, I don't mourn the loss of money

because money you make, you can lose and you can try to make again.

Secondly, I count my blessings.

And thirdly, I'm not going to become a bitter person

because nobody wants bitter people around them.

[technician] Camera B.

Can I call you Christo during the interview?

Please, for heaven’s sake, Rob.

Can I ask, what were your first interactions with Markus Jooste like?

I got to first know him in 1982

when he worked for a firm of accountants who audited my books.

He was a clerk then doing his articles,

and noticed him, that he seemed like a bright young guy.

And then...

I never saw him again until, I think, 2006.

Christo Wiese, at some stage at the height of Steinhoff’s prowess

was the wealthiest person in the country.

He was part of the Bloomberg Billionaires Index.

Do you know within the closest billion just how wealthy you are?

I have no idea because my experience has been that generally people

who know how much they’re worth, are not worth a hell of a lot.

Were you born into a commercial family?

Yeah. You know, a typical small-town business family.

- Upington? - Upington, yeah.

My dad owned a garage, and he was also a Kalahari farmer,

which was quite typical of Upington in those days.

Christo Wiese goes and studies law at Stellenbosch University,

and he does very well.

And at the time, his family invests in a small company called PEP.

PEP becomes a fantastic success story.

It sold to all races, unusually at the time,

and it sold at a price that many people just didn't.

I mean, you were buying clothes for 99 cents.

It was a first real low-cost discounter.

Well, it went on a very aggressive expansion phase.

I joined the business fulltime in 1967.

Christo goes on to be one of the founding presences at Shoprite.

And Shoprite, today, is this massive multi-billion rand,

largest supermarket in Africa.

And Christo Wiese was seen as the guy you followed,

he was the Warren Buffett of South Africa to some extent.

[Christo Wiese] I always tell people, one wine estate is one too many...

To have two is close to a nightmare.

[Rob Rose] So Markus Jooste managed to woo Christo into Steinhoff

by essentially saying he would buy Lanzerac from Christo.

- It was the incident with Lanzerac... - [Christo Wiese] Yeah.

[Rob Rose] That's how you first got involved with Steinhoff?

- That's right. - Could you describe how that happened?

I told him that I wanted to sell Lanzerac.

And he said, "But I'll buy it from you."

"Great. Let's do a deal."

And he said, "But I can't pay you cash, but I'll pay you with Steinhoff shares."

And suddenly I became a fairly large shareholder.

In fact, if memory serves, apart from the institutions,

I was the second largest individual shareholder.

They then said, well, I'm such a large shareholder...

"they" being the executive in Steinhoff,

they would like to invite me to become a member of the board.

And that's how I got on the board in 2013.

[Rob Rose] His relationship with Markus grew from that point.

It was almost as if Markus had groomed Christo for this role

and wanted to bring him in.

Markus only had about 4% of the shares, but he acted as if it was his company.

It was his fiefdom.

And he actually appointed the board members.

So, typically you would have a strong chairman,

the chairman would have a nomination committee,

and they would then actually go and recruit board members.

In Steinhoff's case, it didn't work like that.

Markus hand-picked the board members, and obviously lured them for money and fame.

Not that many of them actually needed the money,

but people wanted to be associated with success.

You look at the board of Steinhoff...

Some of the most eminent, successful people in South African business

were on that board and for a long time.

[Alec Hogg] Markus was able to attract

some really, really serious guys onto his board.

We mustn't forget, the former CEO of Sanlam, Dr Johan van Zyl,

was on his board.

Dr Len Konar, he was a professor of accounting.

Steve Booysen, who in my brief period in the corporate field,

I worked with at ABSA, and a very smart guy who ran ABSA, who was ABSA’s CEO.

These were guys who knew their way around a balance sheet

and certainly knew their way around businesses.

The chief executive of a company isn't a law unto himself.

He answers to the board.

And whatever the CEO does, needs to be checked by the board.

And it's very clear in this instance that that did not happen.

There was not a culture of the board providing proper oversight of Jooste.

I think Jooste came from Johannesburg, where he made all his money

and he had this enormous desire to be part of the Stellenbosch society.

When he arrived in Stellenbosch, when he moved Steinhoff's headquarters

down from the very unfashionable Wynberg district in Johannesburg,

Jooste arrived with a lot of flash, a lot of money, a lot of shimmering money.

And he immediately started to try and establish his company

as part of the Stellenbosch set.

They immediately started to sponsor, for example, the university's rugby club.

In fact, the South African Sevens rugby team,

after winning the world championship one year,

was given a bunch of Steinhoff shares as a gift.

Markus, I think, some time ago bought Dr Rupert's house in Hermanus,

and he eventually consolidated 14 plots and built himself a mansion.

They developed the whole Jonkersdrift compound

where the entire, sort of, Steinhoff senior management resided.

Big fancy head office.

Markus had invested hundreds of millions of rands in horses.

All of a sudden, expensive and very exclusive parties

started being held at exclusive homes.

And even mid-level managers were driven around Stellenbosch

in chauffeur-driven cars.

And certainly Jooste, by all accounts,

as well as his minions and his enablers, liked flashing around their money.

By and large, I think Stellenbosch was very much taken

with the influx of Steinhoff money, with what Jooste brought to the town.

I think they kind of grinned and beared the crass way

in which he flaunted his money, in which the Steinhoff people

went about indulging in town,

because they created wealth for a lot of Stellenbosch people.

They didn't really query Jooste.

And even though he was in some quarters regarded

as a boorish character, you know, money papers over the cracks.

But then again, who did question Steinhoff, you know?

Certainly not regulatory authorities, certainly not his board,

certainly not his most significant shareholders, locally and overseas.

If someone like that sweeps into town and brings with him prosperity and wealth,

why would you question it?

I had a very negative view on Steinhoff and others didn’t.

I acknowledge that it's very easy to get sucked in.

It's very easy to drink the Kool-Aid that gets put out there

by dominant CEOs and good marketers.

[director] Would you call yourself a typical finance guy?

Yeah, I think that's an interesting question.

I think what's very important as an analyst is always to

question your assumptions and question your views.

Look for evidence that contradicts your view

rather than evidence which supports it.

On that basis, I think I developed a fairly healthy scepticism, not cynicism.

I think scepticism is good.

Many of the big investment banks have analysts that cover companies

and tell investors and advise people, "Is this fairly valued?

Is this overvalued? Should you buy the shares? Should you not buy the shares?

Is it good value? Are you gonna make money from this?"

[Craig Butters] So as an analyst I would attend the investor presentations.

So, Markus Jooste’s precise forecasts as to where margins would be, for example,

they made me wary.

Nobody knows what's going to happen in their business.

And I couldn't believe how confident he was.

Compared to the previous six months of the same period of last year, with this year,

and you take the average translation rate

that you used to convert our foreign denominated earnings into rands.

Astute investors with the information we provide can easily

do those sums if you have the time and you are really interested.

Anyone who is aggressive, who is...

dominant in terms of where the company is going,

strategy, not allowing different views...

I think one needs to be wary of that.

Markus often was self-deprecating at these presentations.

He would say things like, "I don't understand accounting.

I'm not sure how this was all put together."

But clearly we know that that was not the case.

[Dr Giada Del Fabbro] Within corporate culture,

there is a sense that a trace of psychopathy, such as being charming,

being able to manipulate situations,

wanting to win at all costs, those traits are rewarded.

"Snakes in Suits" is a term

commonly used in psychology to describe individuals

who commit criminal activities in corporate settings

and have quite a lot of psychopathic personality traits.

I guess anyone can handle a non-venomous snake,

so I'm pretty comfortable handling venomous snakes.

At the end of the day, it's about managing the risk when you're handling them.

[director] So, do you get the same kick

from venomous snakes and dangerous CEOs?

I think you’re fishing...

[Rob Rose] Steinhoff was one of the few companies that didn't take questions

after investor presentations.

This is fundamental to understanding how a company works.

You have a presentation, you say,

"This is what we're doing, ask us what you want." Steinhoff didn't do that.

He knew the analysts by name,

and I think those were analysts that were close to him.

I can say that my observation was that his personality changed over time.

Especially when he started operating in Europe.

He was a little more modest and humble in the early years.

And over time he was quite...

I'd almost say, like, cocky. Like, really cocky.

He used to wear ties, then he was no longer wearing ties in those meetings.

He had a plan, and nobody was gonna disturb him.

Nobody was gonna ask questions that may suggest that this plan could go wrong.

He had a plan, and he was going ahead with it.

[Craig Butters] At the investor presentations

I didn't stay long afterwards.

Often I would leave the minute the presentation was over.

Most investor presentations to analysts are...

followed by drinks and snacks, etc.

And the little bit that I did see, Markus would hold the floor

with a fairly wide circle of people.

People would be drinking brandy, they'd be drinking single malts.

They'd be hanging out with Markus and essentially buying the narrative.

They were drinking the Kool-Aid brandy of this particular event.

And it allowed people to

perhaps shelve a lot of their concerns and buy into the cult of Markus.

But I think the boys club in Steinhoff is something that needs to be pointed out.

This old boys club around Steinhoff, you know,

separate from the Stellenbosch... So-called Stellenbosch Mafia,

but inside of Steinhoff...

The way in which Jooste was just trusted blindly,

and the way in which his dealings went unquestioned.

For example, taking a whole host of friends and...

and hangers-on and acolytes to the 2015 Rugby World Cup in London.

And having the company pay for that and absolutely indulging

in, you know, some of the worst excesses that you can on a rugby tour.

I think it shows a level of arrogance and a belief in his own immortality almost.

And so, the culture was specifically very patriarchal, very Afrikaner,

braaivleis and drinking,

and, you know, "Boys, boys, boys..."

It was very misogynistic.

Women were often the target of derogatory statements.

Women were not appreciated, really, other than for their beauty

or for their legs, you know, or for their blond hair.

So for somebody like me who comes in with a...

shall I call it a progressive sentiment, if you will...

it was very noticeable and quite difficult to deal with.

Because now you're in this culture,

and if you want to stay in the culture, you've got to succumb to the culture.

They were the many, many hours after hours and the braai sessions

and the drinking sessions where we disagreed on political issues.

And it was quite clear that Steinhoff was essentially...

a... dinosaur of the past walking into the future, you know.

And it was always interesting for me to figure out whether that culture

was going to survive into an international arena.

So throughout Steinhoff's life

one of the horses at the end of the trail

it was always chasing, was IKEA, the Swedish company.

It was the largest furniture retailer in Europe.

And right from the '70s and '80s, Bruno Steinhoff would talk about IKEA.

This was the elusive Holy Grail that Steinhoff was chasing,

and Markus had his sights firmly set on IKEA.

They'd talk about it and sketch how they were going to do it.

And that lay behind a lot of the deals they did in Europe.

They brought Conforama, this French retail chain.

They bought Poco. They bought a number of retailers in Europe,

all in the interests of toppling IKEA.

It'd be that racehorse in the European furniture industry

that was just a little bit faster, that Markus couldn't quite catch.

Steinhoff is expanding massively.

It's buying assets overseas, it's buying assets locally.

And the acquisition trail, if anything, was going to only hot up.

But a lot of analysts and a lot of the investment community

in South Africa didn't quite buy the story.

As the share price rallied, we never upped it.

We did have some clients that did question us quite heavily.

We were under enormous pressure.

In the end, we turned around and said to clients,

instead of us saying, "We are right, the market is wrong,"

we said, "We apologise."

We said, "Look, we maybe got it wrong, but from our perspective

what we are seeing is that it is not generating cashflows,

the debt is growing.

They are unable to pay down the debt

because they have to keep buying other businesses.

I can tell you there were untold amounts of hours

that we spent stress testing the model.

I mean, we were a tiny asset manager,

so they kind of brushed us off.

We are just humble people and we thought

the best thing is to not get into an academic debate

or a debate with a client. We apologised. And we stuck to our guns,

but it wasn't a comfortable position. It was never comfortable.

There was a lot of pressure.

[Craig Butters] Right, so in December 2009

it is here at the Waterfront that I met with Christo Wiese.

We had some serious concerns with Steinhoff.

I'd done a lot of research on the company over the preceding five or six years.

And we felt we needed to convey these concerns

and hopefully prevent him from...

from incurring any losses by investing in Steinhoff.

- [Rob Rose] We spoke about Craig Butters. - [Christo Wiese] Yeah.

- Remember that meeting? What happened? - Very well. Very well.

I mean we had a meeting at the One&ampamp;Only Hotel.

I listened to him very carefully, he's an intelligent guy.

Appeared to have done his homework very well.

[Rob Rose] He gives Christo Wiese a 40-page slide pack

saying, "These are the reasons why we're uncomfortable with Steinhoff."

And what Craig worked out which was fundamental in Steinhoff

is that about 41% of the profits that it would announce had come not from

actually doing sales and putting money in the bank,

but from fancy accounting tricks.

What it would do, what a lot of companies do,

is they revalue things in their portfolio.

They say, "The difference between today I value it R1 billion,

tomorrow I value it at R2 billion.

I'll take the R1 billion difference into my profit and say,

'I've earned that this year.'"

That's an accounting trick, not real cash flow.

It's not a fair reflection of what your company is making.

I think it's important to emphasise that if it were just one big issue,

then probably everybody would have spotted it and had a negative view on Steinhoff.

There were a number of issues. Some of them were red flags.

Some of them were key financial and operating concerns

of a very serious nature, in my view.

But you had to put all of these together in order to come to the view,

[Rob Rose] So the question is

why it took so long for anyone to question the Steinhoff narrative.

A lot of these analysts sit inside investment banks

and investment banks themselves earn a lot of money

by advising on deals to companies.

So it isn't in their interests, for the analyst,

to question the companies too much.

And in the case of Steinhoff,

it was a company that was doing massive deals all over the world the whole time.

[Craig Butters] I highlighted six or seven key issues.

Firstly, banks were very, very keen to finance Steinhoff

because they were so aggressive in the market, and making these acquisitions.

But the debt is still there and you still owe the money

to your banks and your creditors and other lenders.

We highlighted a significant number of transaction

with these unknown private entities.

One company in particular that kept rearing its head was Fihag Finanz.

[Rob Rose] Remember we talked about how in the early 2000s

Steinhoff wanted to buy forests so that it owned the whole value chain?

What happens is that Steinhoff announces it's going to buy the forest

and then shortly afterwards decides, "Actually, we don't want the forests."

But luckily enough, a third company comes out of nowhere

a mysterious entity called Fihag that decides to buy the forest

for what ultimately turned out to be around R11 million.

And what this company will do is lease it to Steinhoff.

And two years later Steinhoff decides,

"Actually, we do want to own these forests,

so we will buy it from Fihag for R149 million."

That's a massive increase in value.

The question then becomes, "Who owns Fihag?"

It's interesting, because in 2011

SARS comes out with this case involving Markus Jooste.

Suddenly the revelations of the forest deal come out.

Ultimately, the SA Revenue Service

traced the benefit in this particular case to Markus Jooste.

It's a curious related-party deal. How did this happen?

Companies do deals all the time.

Money flows from one company to another, and that's fine...

as long as you know who all the parties involved are.

The thing is, the CEO of an acquiring company

might also be a shareholder in the disposing company.

And if he doesn't disclose it, he might use his influence

to inflate the sale price so that he profits from the transaction.

He would be what is known as a "related party",

It could be that additional shell companies are used

so that it's very difficult to track who the real beneficiaries are.

This type of related-party transaction is how Markus Jooste

made millions from the 2001 sale of Knysna forests to Steinhoff

which the tax authorities exposed in 2011.

[Craig Butters] So during the meeting,

I thought he asked very interesting and insightful questions.

He was extremely grateful. He gave me his insights.

He gave me the reasons why he was thinking of doing something,

and I thought he'd got it.

But at the end of the meeting with Craig Butters,

it turned out Christo just wasn't convinced.

[Christo Wiese] I then went and read ten other analysts' reports

with a completely different slant and none of this.

I then went on the board having this at the back of my mind,

and I thought I'd sit there and see how things operate.

That is the extent to which I will do a due diligence.

In many cases, external analysts would even mock me for my view.

I sort of became a little bit of a joke

with this negative view, and the Steinhoff share price was going up.

And for a long time it looked like I was horribly wrong,

and analysts were not shy in telling me that it seemed like I was wrong.

And Jooste always had an explanation, you know, right to the last minute,

that it was all tax problems...

And because he operates in different jurisdictions

with different laws and different accounting standards, etc., etc.

"And these people just don't understand it."

Yeah, because, Rob, you know as well as I do

that if you have 20 analysts, you'll have 21 views, you know.

Some people like, dislike, don't understand the business, whatever it is.

[Rob Rose] Then, in 2014, the big fantastic deal for Steinhoff...

Steinhoff decided to do a deal to buy PEP.

R63 billion, massive deal in the corporate landscape, the retail landscape.

[Markus Jooste] So we are looking forward to add Pepkor

into the Steinhoff family of retail companies and it will certainly enhance

our value and discount model

throughout the world, in all the territories where we operate.

I did the deal at, I think, R52 a Steinhoff share.

Within a year or 18 months it was R97, virtually doubled.

Because the businesses that I, or my co-shareholders, put into Steinhoff,

are brilliant businesses.

[Rob Rose] If you have someone like Christo Wiese on your board,

somebody who is the Midas of investments, everything he touched turned to gold.

It'll confer a new status on Steinhoff.

And Christo, I think, bought Markus's idea

of this fantastic Pan-African global European retail chain.

It fitted into Christo's idea of consolidating assets.

As he was getting on a little, certainly the feeling that I got from Markus's side,

was that Christo wanted his legacy in good hands, and Markus was those good hands.

Markus, he managed Christo unbelievably well. He really did.

And right up until the last minute, right up until the last day...

Christo believed him.

Hi, everyone.

Thanks for tuning in to the CNBC Africa special with myself, Fifi Peters.

For the next half hour, I'll be speaking with Dr Christo Wiese.

I looked at Steinhoff with its wide spread of interests,

with its very strong balance sheet,

and a number of other factors, and thought that by putting these businesses together,

we could create what...

we called a prospective African champion.

In other words, an African retail business that had become global.

[Craig Butters] I have to be honest, I was absolutely flabbergasted.

I couldn't comprehend why, having heard of all of these red flags,

all of these financial and other concerns,

that he thought it was okay to be invested in the company.

He got sucked in, I guess, being so close to Markus Jooste.

[Rob Rose] With Markus, you talk about the value of trust.

- [Christo Wiese] Yeah. - You obviously trusted him implicitly.

Had he done nothing to...

- to shake that impression? - No, Never. Never.

He had a different management style to mine,

but there was nothing to indicate, not the slightest thing,

to indicate that he would cut corners or do anything.

Nothing.

What I did notice was...

how he always found a solution to a problem.

You know, he would really think out of the box

and say, "But, why do it this way and not that way?"

Yeah. That impressed me.

He certainly found a few alternative solutions to accounting, I think.

That, of course, I was not aware of.

Steinhoff is a vertical integrated retailer

operating worldwide throughout Europe,

Eastern Europe, the Pacific Rim and Africa.

And we continue to grow our retail footprint throughout Europe

and Eastern Europe on a very aggressive basis.

We look forward to the New Year with lots of exciting developments

in France, in Germany, and in all the territories of the world

where we operate with new opportunities to continue to increase our footprint.

Steinhoff was considered a safe bet if you were playing on the stock market.

People were talking about "Steinies" as shorthand for Steinhoff shares.

And the talk in Stellenbosch for many years was,

"How many 'Steinies' do you have?"

"How does your 'Steinie' portfolio look?"

"You know, I've bought another couple of 'Steinie' shares."

And a lot of young graduates wanted to go and work at Steinhoff.

It was this modern...

very rich, multinational conglomerate established in Stellenbosch.

My involvement with Steinhoff was sometime in May 2015.

[telephone ringing]

When Markus called me fairly out of the blue and says,

"I've got a deal for you."

And on the 25th of May, 2015, he strided into my office

with his slightly built-up shoes and his tailored jacket, all confident.

I've known Markus since university...

and I'm on record to say that he's a bit of a sneaky character.

And, I mean there are a couple sort of, I think, truisms in investments.

Never invest in aeroplane companies, never into furniture manufacturers.

And I was quite, sort of, sceptical.

So he was actually quite upset with me that the big Markus Jooste from Pretoria

couldn't get an audience with Coronation Fund Managers.

So that's how our relationship at the time was.

He says, "Thys, we currently, as Steinhoff, own 20% in PSG,

and if you and two other investors swap your PSGs for Steinhoff

we'll earn 25%, we'll get a tax benefit.

I then swapped my PSGs for Steinhoff.

That's how I became involved,

not as a director, not as an executive, but as an investor in Steinhoff.

You know, it's interesting...

With the benefit of hindsight, we are all very clever.

But for every one red flag, there were at least 100 green flags.

It's the end of the year Steinhoff decides it is going to list

in Frankfurt on the stock exchange.

They'd just bought PEP, they have the legitimacy of Christo on board

and thought it was time to ramp up the story.

I did never know, really, what is a listed company in Frankfurt.

I never learned that.

But Markus told me, some other people told me,

that we can get via a listing more money for expansions.

It's a deal that will ultimately help put them on the global stage.

It'll bring them to the attention of overseas investors,

and it's one step towards becoming the next IKEA.

But days before it lists the German police pitch up at Steinhoff's headquarters,

their European headquarters,

and raid the company.