Shake up at SNC-Lavalin continues
The chief executive office of SNC-Lavalin, Pierre Duhaime, stepped down from the company on March 26, causing a stir in the business press. The same morning, the company announced its year's results for 2011, which showed a drop in net income...
The chief executive office of SNC-Lavalin, Pierre Duhaime, stepped down from the company on March 26, causing a stir in the business press. The same morning, the company announced its year’s results for 2011, which showed a drop in net income from $431 million in 2010, to $379 million in 2011.
The third — and possibly most critical — piece of news issued by the Montreal engineering and construction giant that morning, was the results of the independent review that the board of directors had authorized to look into irregular accounting for millions of dollars made to undisclosed agents.
The payments, amounting to $33.5 million and $22.5 million in 2010 and 2011, had been misallocated to construction projects to which they did not relate.
According to the press release the review did not find evidence to tie the misallocated agent payments to projects in Libya, and during the question and answer period following the announcements, Gwyn Morgan, the Chairman of the Board, said that Libya “is a separate issue.” He said that the company was learning more about the Libya situation from media reports, and said that in that regard, “We are just turning everything over to the authorities.”
He said that commercial rules prevent them from disclosing who the payments were in fact intended for. Immediately following the announcement media reports suggested that the payments were related to projects in Tunisia.
The independent review of the company’s transactions was authorized by the board of directors at the end of February and carried out by Stikeman Elliott LLP on behalf of the company’s audit committee.
The review included collecting electronic and paper documents from the corporate headquarters in Montreal, interviewing some members of senior management, and “background intelligence work.”
The company’s statement noted that the investigations had been hampered by the fact that a former senior executive in charge of construction, Riadh Ben Aissa, was unavailable for questioning, and that Stéphane Roy, the former controller of construction had only been met with once, before he was dismissed on February 9. Ben Aissa, who also left the company in February, has been replaced by Charles Chebl as senior vice-president of construction.
The company referred to its problems as “material weakness in its internal control over financial reporting as of December 31, 2011, relating to management override, non-compliance with and ineffective controls over compliance with the Company’s policy on commercial agents, and its code of ethics.”
Ian Bourne has been appointed vice-chairm and interim chief executive officer until a new CEO is found. Speaking at the news conference, Bourne emphasized that despite the drop in the company’s results in 2011 — due partly to the factors unearthed during the investigation — the company results are still positive. He pointed out that it held cash and cash equivalents of $1.2 billion at December 31, 2011.
He also cited many recent large projects that the company has been commissioned for, including the Highway 407 east extension in Toronto, the Darlington Nuclear Plant renovation project, and the P3 Restigouche Hospital in Campbelltown, New Brunswick.
Gwyn Morgan thanked Bourne for taking over as an interim CEO on short notice, pointing out that Bourne has been a member of the board of directors for three years. He said they had immediately started a search for a new chief executive officer.
Morgan also thanked Duhaime for 23 years of dedicated service to the company and wished him well for the future.
The Chair also said that the board is “proud of the 28,000 skilled and dedicated people of SNC-Lavalin and know that they will continue their excellent service to the company’s thousands of clients around the world.”
To see the March 26, 2012 press release on financial results, click here
To see the March 26, 2012 press release on the report of the voluntary independent review, click here
To read CCE’s interview with Mr. Duhaime shortly after he became president, click here.