Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Eric Olsen, CEO of LafargeHolcim Ltd., is resigning less than two years after taking charge of the world’s biggest cement maker. He's bitten the bullet over allegations that Lafarge SA employees facilitated payments to armed groups in Syria before the merger with Switzerland’s Holcim.

There are many disturbing things about this case. But Olsen’s behavior apparently isn’t one of them: an internal investigation, aided by outside counsel and forensic accountants, concluded he wasn’t responsible for, nor aware of, any wrongdoing. Yet as Lafarge’s head of operations at the time, maybe he should have been better informed. Olsen says his departure will restore “serenity”. The Franco-Swiss company probably needed a sacrifice to avoid the case escalating. 

Lafarge admits paying go-betweens from 2011 to protect its $680 million Syria plant and its employees and supplies. That continued even as terrorist groups, subject to US. and EU sanctions, moved into the area in 2013.

The company probe hasn't established the ultimate recipients of those funds. So it doesn’t know if Islamic State got some of the money (the word "ISIS" doesn’t feature in the company's statement.)

If LafargeHolcim was a bank, it might be less serene about the potential impact from the case. The U.S. takes a dim view of facilitating payments to parties subject to sanction. French prosecutors have opened an investigation and LafargeHolcim says it will cooperate, which should help.

Still, it's hard to be 100 percent confident in LafargeHolcim's belief that the allegations probably won't have a material financial impact. The company generates one-fifth of its revenue in North America. Olsen didn't rule out supplying cement for President Donald Trump’s Mexico border wall, prompting a rebuke from France’s foreign minister. Leaving aside Trump’s “Buy American” policies, the U.S. may have qualms about handing contracts to companies that might have undermined its foreign policy.

U.S. Dependency
LafargeHolcim gets about one fifth of sales from North America
Source: Bloomberg

To be clear, Lafarge faced a difficult situation in Syria. Local managers doubtless thought they were right to protect Syrian employees. Yet it’s remarkable that the company didn’t evacuate Syrian employees until September 2014, when ISIS fighters seized the plant -- three years after the start of Syria’s armed insurgency.

LafargeHolcim is creating an ethics, integrity and risk committee to oversee the sprawling group, which has 90,000 employees in more than 80 countries. But you don't have to be a governance expert to know that abetting deals with armed groups isn't a good idea.

Former Holcim shareholders can't be happy. Merger talks became public in 2014 and the deal was concluded the following year. In light of the disclosures, the Swiss company's shareholders would have been better off knowing more about Lafarge's Syrian activities.

This merger always seemed to be more about egos than business rationale. Two of its architects, ex-Lafarge CEO Bruno Lafont and former Holcim chairman Wolfgang Reitzle have moved on, or will soon. But Olsen, a compromise candidate as CEO, seemed to be making some progress. Reports in the French media about divisions among big shareholders over the Syria case don't reassure that the Franco-Swiss tensions after the merger have gone away. Olsen's departure may calm things somewhat but it's hardly a sign of a settled company.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Non Syrian employees were relocated in 2012. 

To contact the author of this story:
Chris Bryant in Berlin at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net