How SNC-Lavalin’s board took ‘extraordinary actions’ as scandal unfolded

It was around Christmas 2011 when the first whiff of potential impropriety wafted up to the nerve centre at Canada’s largest engineering and construction firm. The board of directors at multinational giant SNC-Lavalin Group Inc. were stunned to learn of claims that the company’s then chief executive Pierre Duhaime, and possibly others in his senior management circle, may have misallocated funds to projects in far away places.

For a board, the dreaded scent of wrongdoing is anathema— but particularly if it’s the CEO who is alleged to be involved in illicit activities. The early days of 2012 were a frenzied flurry of activity: an independent review by hired legal guns under the oversight of SNC’s audit committee was promptly launched. In February, the Montreal-based firm publicly announced its internal investigation, and a month later, Mr. Duhaime was gone from the firm, as SNC released the results of its internal probe.

Inevitably, as speculation mounted and public scrutiny intensified, the 104-year-old firm made what in hindsight may be criticized as a fateful decision: to turn all of its findings over to the RCMP and the Sûreté du Quebec in March 2012.

Fast-forward almost three years to Feb. 19, 2015. Despite a calculated strategy designed to avoid prosecution through co-operation and conciliation, SNC was charged this week with criminal fraud and corruption by the RCMP in connection with dealings in Libya from 2001 to 2011. While former company executives also face criminal charges — including Mr. Duhaime, who is facing charges of fraud, conspiracy to commit fraud and issuing false documents related to the scandal around the construction of the multibillion-dollar McGill University Health Centre —  the company long considered one of Canada’s global corporate champions was swept deeper into the widening anti-corruption dragnet for its lax ethical culture.

The charges laid on Thursday relate to alleged bribes offered to members of Libya’s iron-fisted Gadhafi family, linked to SNC-Lavalin projects in that country. Publicly, the corporation dismissed the charges as “without merit,” insisting it will “vigorously” defend itself. Privately, the company’s brain trust is seething. Not only has the company been co-operating fully with the police investigation — and has completely rehabilitated its internal corporate culture to become one of the most ethically stringent, anywhere — the company was the one that brought the case to the RCMP’s attention in the first place, sources inside SNC-Lavalin reveal. Requests for interviews with company executives were declined on Friday.

Ian Bourne, SNC’s chairman, has not spoken publicly since the charges were laid. However, the Financial Post has obtained prepared remarks he made to a governance group last May that offer a glimpse into the frantic events inside the firm as the scandal unfolded and how the board of directors stepped beyond its traditional oversight role and took control.

In a candid speech titled “The board’s role in transforming business and corporate culture in times of crisis,” Mr. Bourne told his audience that the “allegations of ethics… would prove to be a defining moment in the company’s long history, and for its board.” In the speech, he reveals how the SNC board was forced to take a hands-on role in the company as it scrambled to find new leadership that would saturate the company with an unshakable commitment to ethics and rebuild the company’s severely undermined reputation.

Mr. Bourne, who joined SNC’s board of directors in 2009, remarked “While we cannot yet declare victory, I believe the actions we took as a board in the wake of these events have helped make SNC-Lavalin a stronger company today.”

In the 26-page speech, Mr. Bourne, a respected businessman with a distinguished career corporate that began at General Electric Canada, Canada Post Corp. and TransAlta Corp., described a venerable company dating back to 1911 that was seized by a crisis that took a long time to resolve, that resulted in a major overhaul of its leadership, core value system and ultimately, the way it is governed.

In a rare glimpse inside a boardroom in crisis, he referred to the series of events over two-and-a-half years as “extraordinary actions,” because “we were required to temporarily step well outside our traditional board responsibilities.” Mr. Bourne told an audience at a conference in Montreal hosted by the Institute of Corporate Directors that the ordeal ultimately led “to further reflection about ourselves as directors, which has proven to an be equally positive process.”

With a sprawling network of 40,000 employees worldwide who provide engineering and construction services to clients in the mining, oil and gas, infrastructure and power sectors from Canada to Eastern Europe to Africa, transparency became a daunting challenge.

Although the board had decided to be as forthcoming as legally possible with as many stakeholders as it could, Mr. Bourne lamented what he considered the “ill-founded external criticism” the company was facing. “There is a big difference between sitting idle or procrastinating versus letting the investigation and legal processes work their way through the issues,” he added.

The task of reassuring its customers, employees, governments and shareholders was “monumental,” he recalled. He paid tribute to shareholders who stuck with the company. The Caisse de dépôt et placement du Quebec, for instance, boosted its stake in SNC to just over 10% during the crisis.

“I think it’s safe to say that board engagement with shareholders took on a whole new meaning,” Mr. Bourne told the Montreal audience.

While the investigation was unfolding, a small group of four SNC directors were tasked with launching a worldwide search for a new chief executive with a “pristine reputation.” In the meantime, Mr. Bourne was named the interim CEO to keep the massive global business operating on a day-to-day basis and to implement the changes being made at the board level, while he continued his role as vice-chairman. The company began reinforcing company standards of conduct, strengthening internal controls and processes, and reviewing the company’s overall compliance structure based on recommendations by the audit committee.

Stepping into the executive role was an extraordinary crisis-management measure, Mr. Bourne acknowledged. But it allowed him to become a “window into management” for his fellow directors to monitor the senior ranks, which had been decimated by the scandal and the resignations of Mr. Duhaime and others — and to ensure they were following instructions.

“Of course, we knew we were blurring the lines between board and managerial responsibilities, and we took that seriously,” Mr. Bourne recalled, adding they intended to revert back to a “traditional involvement in company affairs” as soon as possible.

By September, 2012 SNC had overhauled its code of ethics, had launched training sessions and required employees — and board members — to complete annual certification processes.

The next month, Robert Card was appointed the new CEO – six months after the vacancy opened up. As other appointments followed, including, notably, the establishment of a chief compliance officer, SNC’s board felt more confident that the company’s newly configured compliance and ethics procedures were working. It was ready “to pull back to a more traditional role,” Mr. Bourne said.

But a year after the scandal engulfed the company, the directors began looking inside their own boardroom. That introspective “renewal” process, resulted in Mr. Bourne’s promotion to chairman of the board, and chair of the governance and ethics committee at the company’s annual general meeting. It also led to a series of difficult and uncomfortable conversations about how well the 12 directors worked together as a team, whether they had the right skill set as individuals and collectively, and more importantly, if they shared the same principles of integrity and sound judgment. As a result, four directors resigned and three new members were appointed.

By the spring of 2013, a more normal routine began to settle into SNC’s boardroom as it assumed its traditional oversight role. Under Mr. Bourne’s leadership, it continued to reinforce its ethics overhaul through numerous committees that trickle down through the firm.

And he imparted six lessons gleaned from the experience to the largely governance-oriented crowd, most notably, “ a directorship is not a synonym for retirement” and it is incumbent upon directors to “figure out” if senior executives are operating outside company rules — because that’s what shareholders and stakeholders expect from a board.

Sounding an optimistic tone, Mr. Bourne acknowledged that while SNC still faced continuing police probes, he was confident the wrenching internal efforts to clean house would turn the tide. “SNC-Lavalin is now reclaiming its place among Canada’s most respected corporations,” he said at the time.

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