SNC-Lavalin Group Inc.’s (SNC) biggest shareholder said directors provided inadequate oversight before a probe of incorrectly booked payments led to the chief executive officer’s resignation and a former vice president’s arrest at Canada’s largest engineering company.
“We have a board that didn’t keep its eye on things,” said Stephen Jarislowsky, CEO of Montreal-based money manager Jarislowsky Fraser Ltd., which holds about 14 percent of SNC- Lavalin’s stock. “The discipline was pretty loose.”
Jarislowsky spoke in a telephone interview about a scandal that has helped chop 27 percent of SNC-Lavalin’s market value this year, to C$5.61 billion ($5.68 billion) today. The shares plunged on Feb. 28 after the company opened a probe into inaccurate documentation of payments at its construction unit.
Riadh Ben Aissa, SNC-Lavalin’s former vice president of infrastructure and construction, was arrested amid a criminal probe into North African operations, Swiss authorities said today. Former CEO Pierre Duhaime stepped down in March after SNC-Lavalin said $56 million in expenses were posted to projects to which they weren’t related.
Ben Aissa, a dual citizen of Canada and Tunisia who oversaw SNC-Lavalin projects in Libya, left in February. He “is believed to have direct and significant knowledge about most of the investigated transactions,” the Montreal-based company said in a March 26 statement on the review’s results.
The criminal investigation, opened by Swiss authorities in May 2011, “has uncovered suspicion of corruption, fraud and money laundering, all in relation to business conducted in North Africa,” Jeannette Balmer, a spokeswoman for the Swiss State Prosecution, said today in an e-mail.
Canada plans to cooperate with the Swiss investigation, Foreign Affairs Minister John Baird told lawmakers in Ottawa.
“There are very serious allegations being made against this company, there are very serious investigations going on,” Baird said today. “We’ll do everything we can to support these investigations and to be as helpful as we possibly can. High ethical standards for Canadian enterprises are not something that’s up for negotiation.”
SNC-Lavalin’s board “clearly didn’t perform its function, and the executive more or less operated on his own,” Jarislowsky said, referring to Ben Aissa.
Leslie Quinton, a spokeswoman for SNC-Lavalin, reiterated a previous statement by Chairman Gwyn Morgan that “when the matters were brought to the board’s attention, the board acted swiftly.” The company is continuing to review compliance and other issues, she said.
SNC-Lavalin rose 0.5 percent to C$37.14 at the close in Toronto.
The recent events at SNC-Lavalin “are a black mark for the board,” said Jarislowsky, whose firm oversees more than $38 billion in assets. “They didn’t show that they understood project management.”
SNC-Lavalin said in March that about $33.5 million in payments in the construction unit was incorrectly booked in 2011 and an additional $22.5 million was improperly recorded in 2010 and 2011.
The $33.5 million of expenses from so-called agency agreements were authorized by Duhaime, “in breach” of the company’s ethics policy, after other executives refused to approve them, the company said.
“There’s very much that has to be done with respect to recasting the board of directors, and recasting the fact that the board of directors is the boss, and not the CEO,” Jarislowsky said. “That’s essential.”
The board is led by Morgan, 66, a director since March 2005 and the former CEO of natural oil- and gas-producer Encana Corp. (ECA) Vice Chairman Ian Bourne, 64, who has been a director since November 2009, was named interim CEO when Duhaime stepped down.
Jarislowsky said he expects all 11 directors up for election at SNC-Lavalin’s annual meeting May 3 to win their seats and any changes to the board’s makeup to occur afterward.
The directors serving prior to the payment-booking scandal “didn’t do their job, period,” he said. “It’s not complicated.”
Jarislowsky also criticized SNC-Lavalin’s board for authorizing payments of C$4.97 million to Duhaime.
“I think he should have been fired on the spot,” he said.
Duhaime’s severance package is “consistent” with his employment agreement as well as “customary practices in these circumstances and applicable law,” SNC-Lavalin said in an April 2 regulatory filing.
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