SNC suspends payments to former CEO and shakes up management and board

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MONTREAL – SNC-Lavalin is suspending payments to a retired CEO and shaking up its management and board as it moves to protect a reputation that’s under fire amid corruption charges levelled at several former officials.

The Montreal-based engineering giant said that while the allegations have not been proven in court, it is suspending payments to Pierre Duhaime. The criminal charges he now faces, the company said, suggest there may be additional facts of which it was not aware at the time of his departure.

“Until the facts surrounding Mr. Duhaime’s situation are clarified or resolved, the payments under these arrangements will be held separately,” the company said in a news release Thursday.

Duhaime received a $5-million payout after he stepped down as president and CEO last March. Most of the payments were due to be paid over two years, including $1.9 million in salary continuance, benefits, and $1.7 million of incentives.

He was arrested two weeks ago in connection with alleged fraud involving one of Montreal’s huge new superhospitals.

The arrest warrant alleges that Duhaime and Riadh Ben Aissa, another former top executive, also committed conspiracy to commit fraud and uttered false documents in connection with a contract pertaining to the multibillion-dollar McGill University Health Centre.

SNC-Lavalin (TSX:SNC) said its board was “disturbed” to learn about the charges and will continue to co-operate fully with ongoing investigations.

The company said it is “unequivocal” that no unethical behaviour or illegal acts be tolerated and that anyone found to have committed any wrongdoing should be brought to justice and held accountable for their actions.

“To the extent anyone is found to have misused or misappropriated company funds or to have abused their office while at SNC-Lavalin, we reserve our rights to assert claims against these individuals, including for the recovery of funds,” it said.

In full-page advertisements in eight Canadian newspapers, SNC-Lavalin said Thursday it was bolstering compliance and ethics measures identified since a March report by outside advisers.

Among the measures is an improved complaint reporting procedure, an ethics and compliance hotline, an enhanced agents policy and review process and a requirement that suppliers and partners adhere to the same standards as its own employees.

SNC-Lavalin has hired Trace International, a non-profit anti-bribery firm to conduct integrity checks on current and prospective commercial sales agents.

“We understand that these investigations bring with them outcomes that are difficult but are required in order to identify the problems and those who are responsible,” said the open letter signed by chairman Gwyn Morgan and Robert Card, who recently took over as CEO.

The company has also created a link on its website to regularly update changes it is making to policies, governance and compliance issues.

A spokeswoman said the company wants to be more open about the steps it is taking to improve, but is restricted from shedding much light on matter that are under investigation.

“We will unfortunately have to continue to be mute on the issues related to any investigations with authorities, but everything we’re committed to doing going forward and making sure that these are issues of the past we’re willing to be very open about,” Leslie Quinton said in an interview.

Meanwhile, the company announced that it has also begun a search for a new chief financial officer to replace Gilles Laramee, who will head a new business unit as executive vice-president, infrastructure, concessions and investments.

Laramee already oversees the concessions business but will provide more active oversight to leverage the growing concessions business, which includes Highway 407 near Toronto, AltaLink, the Montreal Symphony hall and the new Montreal superhospital.

Laramee objected to $56 million in payments to agents that were approved Duhaime, some of which relate to the charges that Duhaime now faces.

Pierre Lacroix of Desjardins Capital Markets said the move suggests SNC could be exploring the sale of certain non-core assets.

“We believe investors could interpret today’s moves as more concrete steps toward purging SNC of the perception that it has accommodated wrongdoing and to enforce its stance against unethical business conduct,” he wrote in a report.

Maxim Sytchev of AltaCorp Capital said SNC’s concessions business is a “catalyst for the investment case” in the company’s shares.

The analyst described SNC-Lavalin as the most compelling long-term Canadian industrial investment despite the clouds overhanging its name from police investigations and a provincial investigation into the construction industry.

He said it has a pristine balance sheet, strong backlog and is undervalued compared with global peers.

“We also believe that companies, just like people, have the ability to evolve and improve governance practices. SNC’s board has been very pro-active in addressing the issues over the last nine to 12 months,” he wrote in a report.

SNC-Lavalin said it has also hired a head-hunting firm to identify candidates for election at the next annual meeting who will serve as independent directors.

The number of new candidates won’t be disclosed until it issues its proxy circular in March ahead of the May annual meeting. But it said Eric Siegel and Chakib Sbiti, who joined the 11-member board in 2012, will stand for re-election.

SNC-Lavalin has three board members who must retire in 2014 because they have reached the mandatory retirement age of 72 or have been on the board for the 15-year maximum. They include Metro (TSX:MRU) executive chairman Pierre Lessard, former oil executive Edythe Marcoux and former senator Lorna Marsden. David Goldman and Lawrence Stevenson must leave in 2015.

On the Toronto Stock Exchange, its shares gained 21 cents at $41.45 in midday trading Thursday.

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