What Happens When Powerful People Stop Following the Rules
For years, Steinhoff looked exactly like the kind of company investors trust.
It had international operations, respected executives, sophisticated reporting structures, external auditors, market credibility, and the appearance of strong leadership. It was seen as one of South Africa’s great corporate success stories.
Which is precisely why what happened next was so disturbing.
When accounting irregularities became public in December 2017, Steinhoff’s share price dropped by more than 95%. Investors, including pension funds, suffered heavy losses, and South Africa’s corporate sector was forced to confront a deeply uncomfortable reality: fraud can live for years inside organisations that look disciplined, successful, and well governed. (SciELO)
The shock was not simply that fraud had occurred. The shock was that it had happened inside a company that looked so controlled.
That is the part many boards and executive teams still struggle to face.
Major fraud rarely begins inside businesses where everything is obviously broken. It often begins inside organisations where the policies look sound, the audit committee meets on schedule, the risk register is updated, and the leadership team appears firmly in control.
The danger starts much earlier, in moments that feel small enough to explain away.
A procurement process is bypassed because the matter is urgent. A supplier is approved before all the paperwork is complete because a senior executive says the opportunity is too important to delay. A finance employee questions an unusual transaction and is quietly told not to hold things up. An internal auditor learns that certain relationships create discomfort when examined too closely.
None of these moments looks catastrophic on its own.
Most people inside the organisation can justify them. The business is under pressure. The deadlines are real. The executive is trusted. The supplier has history. The board wants results.
That is usually how institutional decline begins. Not through one reckless decision, but through small compromises that teach people where accountability truly starts and stops.
Employees notice these moments far more quickly than leadership realises.
The first time staff see a senior individual bypass a control without consequence, something changes inside the organisation. Controls stop feeling absolute. They start feeling conditional. Dependent on status. Dependent on influence. Dependent on who is involved.
Over time, people adapt to that reality. They ask fewer questions. They soften their concerns. They learn which matters are safe to challenge and which are not.
Eventually the organisation reaches a dangerous point. Governance structures still exist formally, but internally many people no longer believe they apply equally.
This is one of the reasons serious fraud can survive for years inside organisations filled with intelligent, experienced, highly qualified people. The issue is often not that nobody noticed warning signs. The issue is that people gradually learned it was uncomfortable, risky, or professionally dangerous to challenge them.
Tongaat Hulett followed a similar and deeply damaging path. In 2019, a PwC investigation found that certain executives had overstated profits, with misstatements including early recognition of revenue from land sales, overstatement of cane roots and standing cane, and overstatement of sugar sales in some regions. Reuters reported that Tongaat’s shares had lost around 75% of their value that year amid investor concern over the accounting irregularities. (Reuters)
Again, this was not a company operating without governance frameworks. It was a major South African business with experienced professionals, auditors, reporting structures, and oversight mechanisms.
The controls existed.
But somewhere along the line, the organisation’s culture stopped protecting them.
This is where many companies misunderstand fraud risk. They assume fraud happens because controls are weak or missing. In reality, some of the most damaging frauds happen because influential individuals slowly become stronger than the controls surrounding them.
The ACFE Occupational Fraud 2026: Report to the Nations found that more than half of occupational fraud cases involved either a lack of internal controls or the override of existing controls.
That word, override, changes the conversation completely.
It means the systems themselves often existed. Policies existed. Approval frameworks existed. Reporting structures existed. What failed was the organisation’s willingness to enforce those controls consistently when powerful people were involved.
South Africa has seen this pattern repeatedly in both the public and private sectors.
The Zondo Commission exposed how governance structures inside major state institutions and SOEs were weakened during the State Capture era. At Eskom, the Commission recommended further investigation with a view to possible criminal prosecution of implicated parties for their part in facilitating fraud, corruption, and financial misconduct against Eskom and the State. (statecapture.org.za)
That matters because Eskom did not operate in a vacuum. Procurement policies existed. Board approvals existed. Oversight mechanisms existed. Yet influence, pressure, and politically connected relationships weakened the ability of those controls to function as intended.
That is often how organisational failure unfolds.
People notice concerns early. Then they watch leadership carefully.
If leadership welcomes scrutiny, organisations strengthen. If leadership punishes scrutiny, organisations become vulnerable.
A finance manager notices inconsistencies in supplier documentation. She raises concerns with a senior executive. The response is calm but dismissive.
“Leave it. This has already been approved.”
Nothing dramatic happens after that conversation. Nobody threatens her. Nobody shouts. But something important changes.
She now understands there are certain decisions the organisation does not really want questioned.
Others observe this too. The next time something unusual appears, people hesitate a little longer before speaking up.
This is how silence spreads inside institutions. Not through formal instruction, but through observation.
The ACFE report found that 43% of occupational fraud cases were detected through tips, more than any other detection method. It also found that 55% of those tips came from employees.
That tells us something important.
Very often, people already know. Or suspect. Or sense. Or quietly worry.
The real question is whether they believe it is safe to say so.
Internationally, Enron remains one of the clearest examples of how dangerous institutional silence can become. Before its collapse in 2001, Enron was widely admired. Yet executives used accounting structures, including special purpose entities, to hide debt and present a misleading picture of financial strength. The scandal led to major investor losses and the collapse of Arthur Andersen, then one of the world’s largest audit firms. (Wikipedia)
Wirecard followed a similar trajectory almost two decades later. The German payments company was celebrated as a fintech success story before it admitted in 2020 that €1.9 billion supposedly held in trustee accounts likely did not exist. The scandal exposed serious failures in oversight, regulation, auditing, and market confidence. (The Guardian)
These examples differ in detail, but the pattern is familiar.
Controls existed. Warning signs existed. Questions existed.
But the organisation, or the system around it, failed to confront what those warning signs meant.
That is what should concern senior leaders most.
Institutional failure rarely arrives looking dramatic in the beginning. It often arrives disguised as urgency, growth, loyalty, performance pressure, executive authority, or commercial necessity.
That is why ethical culture is not a soft issue. It is one of the most important controls an organisation has.
The ACFE report found that frauds committed by owners and executives caused median losses of USD 475,000, more than nine times the USD 50,000 median loss caused by employee fraud. It also found that executive-level frauds lasted a median of 23 months, compared with 8 months for employee frauds.
That should force boards and executive teams to rethink where their greatest risk truly sits.
Many anti-fraud systems are designed to monitor junior staff, while senior executives often operate with greater discretion and less scrutiny. Yet senior individuals can influence procurement decisions, override approvals, pressure subordinates, shape reporting lines, and influence what information reaches the board.
When organisations become overly dependent on influential individuals, accountability weakens around them. Exceptions become easier to justify. Oversight softens. People become reluctant to challenge behaviour because the individual is viewed as commercially essential, politically connected, or too important to disrupt.
That is the point where many organisations become dangerous to themselves.
By the time fraud becomes visible publicly, the organisation has often been psychologically compromised for years.
The controls may still exist on paper.
But internally, people already understand something else entirely: some individuals have quietly become bigger than the system itself.