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

MONTREAL – SNC-Lavalin is suspending payments to a former CEO and shaking up its management and board in a bid to protect its reputation amid corruption charges levelled at several former executives.

The engineering and construction company said that while the allegations have not been proven in court, it was suspending payments to Pierre Duhaime, who was charged with fraud last month.

SNC said the allegations suggest there may be additional facts that it was not aware of 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 statement Thursday.

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

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

The arrest warrant alleged Duhaime and Riadh Ben Aissa, another former top executive, conspired to commit fraud and falsified 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.

“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.

SNC-Lavalin has hired Trace International, a non-profit anti-bribery firm to conduct integrity checks.

“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.

SNC-Lavalin subsidiary Candu Energy said Kevin Wallace, its president and a former SNC vice-president in charge of energy and infrastructure projects, left the company effective Monday. His departure followed reports that an inquiry into a bridge project in Bangladesh recommended charges against nine people including Wallace and two SNC executives who face charges in Toronto.

Ramesh Shah, 61, of Oakville, Ont., and Mohammad Ismail, 48, of Mississauga, Ont., are accused of trying to bribe officials in Bangladesh.

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 oversaw the company’s infrastructure concessions business which holds investments in Ontario’s Highway 407, power transmission company AltaLink, Montreal’s new concert hall and the McGill University Health Centre.

Analyst Pierre Lacroix of Desjardins Capital Markets said the appointment of Laramee and creation of the new business group suggests SNC could be exploring the sale of certain non-core concession 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.

Analyst 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 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 firm to identify new candidates to serve as independent directors on its board.

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.