TOP 3 // Corporate Governance
The best cases on corporate governance in Africa from the Case Writing Centre
Although corporate governance has been an important business concept since the 1970s, it began to take centre stage in financial, economics, and business school discourse in recent decades following a string of high-profile cases of financial fraud, mismanagement, and corruption. From Enron’s accounting fraud in 2001 that resulted in the second largest bankruptcy in US history, to risky business practices at Lehman Brothers contributing to the 2008 Global Financial Crisis – and a host of other examples – these cases pointed to the failure of large corporations to practise good governance by maintaining effective systems of accountability and oversight at all levels of their organisation.
The causes of corporate governance failure can be many: poor business practices, poor internal auditing systems, unethical leadership, weak board of directors, unqualified board members, fraud, or corruption. The rise of environmental, social, and governance (ESG) principles in international financial and regulatory frameworks in response to such failures, and a growing demand for corporate responsibility, has further cemented the importance of corporate governance for the world’s leading companies to maintain public trust and market confidence.
In short, understanding how to institute strong oversight systems – and measuring and reporting on these systems – has never been more important for business leaders, and the business leaders of tomorrow who fill MBA classrooms. At the GSB, we have produced multiple award-winning cases that examine corporate governance in African companies. Here, we present three of our top corporate governance cases that highlight the complexities of tracking good governance, and its sustainability over time within a rapidly expanding organisation.
1. “The Abraaj fallen towers: Corporate governance failure at the darling of impact private equity”
by Thinesh Vittee, Associate Professor Stephanie Giamporcaro, Claire Barnardo
Abraaj Capital was founded by Arif Naqvi in 2002 and became the largest emerging market private equity fund, with offices in four continents. Arif took a hands-on approach to lead the company and manage the funds as it grew, and even oversaw the Healthcare Fund. Abraaj emphasised ESG factors and regarded these as an important value driver in their equity portfolio, and investors attributed the outstanding performance track record to this focus on impact. Impact Invest, an investor in Abraaj’s Growth Market Healthcare Fund, had been extremely diligent in vetting the opportunity before investing in 2015. Their due diligence included a detailed look into the company’s history, its portfolio of funds, its historical performance, as well as its leadership team. And yet within just three years of investing US$50 million into the Healthcare Fund, Impact Invest was potentially facing significant losses. With looming accusations of fraud against Abraaj, the case focusses on Impact Invest as they wonder what they missed in their initial analysis.
2. “African Bank Investment Ltd (ABIL): A South African corporate governance failure”
by Associate Professor Stephanie Giamporcaro & Matthew Marrian
African Bank Investments Limited (ABIL) was a South African microlending company founded in 1993. At this time, secured lending dominated the microlending industry and ABIL was one of the first microlenders to break into the South African market. The charismatic founder of ABIL, Leon Kirkinis, was lauded as a visionary when he entered the market to increase financial access for poor South Africans who otherwise would not qualify for secure lending. To expand its reach, ABIL acquired Ellerines Holdings Limited (EHL), a furniture retail group that operated furniture chains in several Southern African countries. Although the decision to acquire EHL seemed a strategic move at the time, investors gradually began to question it, including BG Wealth, ABIL’s largest shareholder. In addition, the risk analysis of ABIL’s loan books raised serious concerns which were already being reflected by ABIL’s plunging share price. Meanwhile, at the BG Wealth offices, advocates for good governance questioned Kirkinis’ leadership. The case sits with the BG Wealth team as they wonder what they missed or should have picked up earlier, and what they should do now.
3. “The Steinhoff signals: The role of responsible investing for asset managers”
by Hendrik Jacobus Haasbroek, Professor Geoff Bick, Associate Professor Stephanie Giamporcaro
Steinhoff International Holdings was a furniture and household goods retailer headquartered in Stellenbosch, South Africa. Over the years it had grown from a small manufacturing operation to a retail giant. This exponential growth was partly achieved by diversifying its operations through multiple acquisitions spearheaded by CEO Marius Jooste. However, these acquisitions also made it difficult to make sense of Steinhoff’s long-term business strategy and financial performance. In addition, recent scandals regarding Steinhoff’s governance and financial shenanigans were causing considerable turmoil in international markets. As one of the majority shareholders, Active Investment Management (AIM) saw, investors would lose millions if indeed the damning accusations regarding Jooste’s leadership and Steinhoff’s inconsistent financial reporting were true. However, in this case, the AIM team is divided on whether the recent share price plunge is an indication that they should buy more Steinhoff stock or if there is more trouble on the horizon. One faction advocates for the ESG analysis to become an integral part of investing decisions, while the other group insists that only financial performance matters. Readers are left to decide who has it right.
Read the cases
You can find these and more cases on corporate governance from the GSB Case Writing Centre at Emerald and The Case Centre.
by Thabile Bhengu
