SNC-Lavalin CEO steps down after investigation

Mon Mar 26, 11:18 AM

The head of engineering giant SNC-Lavalin has resigned after an internal probe showed he approved US$56 million in questionable payments that are now under investigation.
The Montreal-based company's Chief executive officer Pierre Duhaime signed off on the payments, which were related to hiring agents for two projects.
The company came under the microscope a month ago when it announced it was unable to issue a scheduled earnings report because of uncertainties around the company's projects in Libya.
"That's where problems erupted for Pierre Duhaime who today stepped down, he not only resigned, he retired and stepped away from the board of directors as well," said BNN's Michael Kane on Monday.
The company announced Duhaime's departure on Monday, and said it had discovered weaknesses in its internal controls "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."
SNC-Lavalin said the company's CFO and chairman refused to approve the payments in question, but Duhaime stepped in and allowed them to go forward -- a move the company said contravened its code of ethics, according to an internal review.
Last month, the company's board launched an investigation into $35.5 million in payments, which were previously thought to be linked to its Libyan operations.
That probe was later expanded to include another US$22.5 million worth of payments.
All the payments were attributed to construction projects, but a closer look showed the money never reached those projects.
"This Montreal engineering firm really has a stellar reputation around the world, has operations around the world and was in Libya when the Arab Spring began, and it quickly got its people out of harm's way. But it drew a microscope to those Libyan operations," Kane said.
The company did not specify Monday which projects the issues were related to, but did say it did not believe they were located in Libya.
SNC-Lavalin has been criticized in recent months for maintaining close ties to former Libyan dictator Moammar Gadhafi and his family.
Last month, the company fired two employees for having ties to al-Saadi Gadhafi, the son of the now dead dictator who is wanted on an international arrest warrant.
Former executive vice-president Riadh Ben Aissa and Stephane Roy, who was a controller, were "no longer in the employ of the company, effective immediately," according to a release published Feb. 10.
According to reports, Aissa had worked extensively in Libya on projects worth hundreds of millions of dollars.
He also helped al-Saadi Gadhafi set up the Libyan Corps of Engineers and there are reports he flew a Canadian security specialist to Libya to help Gadhafi when tensions were at their highest last year.
SNC-Lavalin said Aissa "is believed to have significant knowledge about most of the investigated transactions" but has apparently refused to co-operate.
It added that Roy may also have knowledge, but he has not been interviewed since prior to his dismissal in February.
Roy has been linked to an alleged plot to help smuggle Gadhafi into Mexico. Mexican authorities recently charged an Ontario woman, Cynthia Vanier, with masterminding the James Bond-style scheme which involved private planes, forged passports and a safehouse.
Vanier was arrested in November with a Dane and two Mexicans. She has been held in a Mexican prison ever since. SNC-Lavalin has only recently acknowledged that Roy was also with Vanier at the time of her arrest, though police did not take action against him.
The company said Roy was in Mexico to discuss water treatment projects with Vanier.
SNC-Lavalin has also acknowledged it hired Vanier's Mount Forest, Ont.-based mediation firm last summer to look at the security situation in Libya and determine whether the company could return to work there.
al-Saadi Gadhafi eventually escaped Libya and was granted asylum in Niger. He is still subject to an Interpol warrant for his arrest.
The company reported Monday that net income attributable to shareholders dropped 52 per cent to $76 million in the fourth quarter, or 50 cents a share, compared to net income of $158.7 million, or $1.04 cents per share, in the same period a year earlier.
The statement said Ian Bourne will take on the role of vice-chairman and interim CEO until a new chief executive is hired to replace Duhaime.

http://m.ctv.ca/topstories/20120326/snc-lavalin-ceo-120326.html

1.    What is the link to Crisis Management?

SNC-Lavalin has come into public scrutiny concerning missing funds with regards to their operations. The CEO has resigned after an internal probe showed he approved US$56 million in questionable payments that are now under investigation. The CEO not only resigned, he retired and stepped away from the board of directors as well. Furthermore, SNC-Lavalin has been criticized in recent months for maintaining close ties to former Libyan dictator Moammar Gadhafi and his family.

2.    What stage of Crisis Management does the system appear to be at?

The system appears to be in a crisis stage. During mid investigations, the CEO decided to step down and retire as well. All the missing funding was attributed to construction projects, but a closer look showed the money never reached those projects.

3.    How well does the system appear to be handling the situation?

The system does not seem to be handling the situation well - as seen by market reports. The company reported that net income attributable to shareholders dropped 52 per cent to $76 million in the fourth quarter, compared to net income of $158.7 million a year before. The company did announce the CEO’s departure and did report weaknesses in its internal controls relating to management override, and ineffective controls over compliance with the company's policy on commercial agents and its code of ethics - which is commendable.

The company’s board also launched an investigation into $35.5 million in payments, which were previously thought to be linked to its Libyan operations. That probe was later expanded to include another US$22.5 million worth of payments. All the payments were attributed to construction projects, but a closer look showed the money never reached those projects.

4.    What level of crisis preparedness does the system appear to have?

There appears to be some level of crisis preparedness because a statement was issued by the company announcing that the vice-chairman will take over the role of interim CEO until a new chief executive is hired. The board of directors has also lodged a investigation into the missing funds. However despite these protocols, the share price of the stocks still tumbled.

5.    What personal reactions/feelings does the description trigger in you?

This description causes severe anger. The CEO should not have the power to overturn established company policies even when the CFO and chairman refused. Someone should have been there monitoring the situation because at this point no one can be held accountable. The fact that SNC-Lavalin was on very good terms with the Libyan leader is not of much concern to me because up until the Arab spring uprising, no one even bothered to know who he was or what operations he did. This issue would be a concern if the projects done in Libya were directly linked to the harm of others.

6.    What advice would you offer to those involved?

SNC-Lavalin should admit failing to follow its own process and procedures and that no independent double check was in place. A statement should be issued that everything is being done to investigate the issue and the individuals would be brought to justice. The company should go further and indicate which projects lost money instead of just saying that they were not the ones located in Libya. In terms of criticism regarding friendship with Gadhafi, it should be indicated that his motives were not clear till the Arab springs and therefore any link to his regime and family should not reflect the culture or values of SNC-Lavalin.