SNC-Lavalin’s CEO just can’t catch a break

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Neil Bruce saw his luck run out at precisely 9:46 a.m., Ottawa time, on Aug. 2, when Foreign Affairs Minister Chrystia Freeland published her now-famous tweet about Saudi Arabia.

The tweet seemed innocent enough. Freeland “strongly” called for the release of detained Saudi dissidents Raif and Samar Badawi. But the Saudi regime went ballistic at what it viewed as Canadian interference in its domestic affairs. The Canadian ambassador in Riyadh was kicked out, and thousands of Saudi students were ordered to leave Canada. Saudi Arabia froze all new trade with Canada and instructed its investment arms to unload Canadian holdings at any price.

Until then, Bruce had been on a terrific run at Montreal-based engineering and construction giant SNC-Lavalin. The Scotsman had spent the past three years tweaking, buying, selling, hiring, firing and refocusing in the wake of its debilitating corruption scandal. Investors loved his work—until Freeland's tweet.

While many diplomats assumed the Saudis regarded Canada as a “soft target,” meaning they could make an example of Canada without inflicting much damage on the Saudi economy, the incident nonetheless triggered spasms of anxiety within SNC, a feeling reinforced by a sharp fall in the share price. Saudi Arabia accounted for 11% of SNC’s revenues and had been a big growth area. The company had 9,100 employees in Saudi Arabia and had been a corporate fixture in the country for 50 years. Saudi Aramco, the world’s biggest oil company, was among its clients. This was one market SNC could not afford to lose, and Canada was isolated. No other country was coming out in support of Freeland’s stance.

“The Saudis threatened to stop working with any Canadian company,” Bruce said in late September, over lunch in London. “It provided a whole bunch of instability. It’s ongoing, it’s not resolved. We’re trying to work our way through it with the clients and hoping they don’t say, ‘We don’t want to work with you.’“

But only two weeks after that interview, another incident displaced Saudi Arabia as SNC’s top problem. In Canada, SNC failed to secure a deferred prosecution agreement (DPA), a negotiated settlement used in some other G7 countries that likely would have seen criminal charges against the company stayed in exchange for fines and a demonstrated commitment to toughen up ethics and compliance standards. Bruce was shocked. He had been optimistic a DPA would land on his lap, capping a magical turnaround story. With no DPA, SNC faces a criminal trial that could thrust it into legal uncertainty for years; a conviction could severely damage, even kill, SNC’s ability to win government contracts in Canada for up to 10 years.

The DPA letdown marked Bruce's first significant defeat at SNC. Until then, his strategic overhaul of the company had gone admirably well, thrusting it into the top ranks of the global engineering and construction (E&C) industry after making two big acquisitions, ditching workaday businesses and recruiting a team of international executives determined to play in the big leagues.

SNC was landing big-name projects, including the REM, an electric light-rail project for greater Montreal; the decommissioning of the Saskatchewan Research Council's Slowpoke-2 nuclear reactor; and full engineering services for one of the world's largest sulphuric acid plants, in Saudi Arabia.

Before learning on Oct. 10 that the DPA would go missing, Bruce said he wanted to push SNC all the way to the top: “I think Canada having a global champion—No. 1—is possible.”

Now, you can't help but wonder: Has Bruce built up SNC only to have to tear it down again?

On a warm day in April 2012, in a chaotic suburb of Tunis, my Arabic interpreter and I banged on the door of a small, modern office that housed Orbit Media and asked to see Baya Ben Aïssa. We were led to a desk where a petite woman in her 70s identified herself as Orbit’s owner and confirmed she was the mother of Riadh Ben Aïssa.

We—a small team of journalists at The Globe and Mail—had been trying to find Riadh Ben Aïssa for weeks and had no idea whether he was in his native Tunisia, in Canada or somewhere in between. What we did know was that he was at the centre of a corruption scandal that would bludgeon SNC, one of the country’s few corporate flag-bearers overseas.

A couple of months earlier, Ben Aïssa, who was SNC's global construction chief and, apparently, North Africa and Middle East fixer extraordinaire, had been drummed out of SNC, accused of making $56 million in payments to unknown commercial agents to help win contracts. Libyan strongman Moammar Gadhafi was among his clients, and SNC was building Gadhafi a 4,000-inmate prison just as the Libyan revolution erupted. That cozy relationship ended in October 2011, when Gadhafi was hauled out of a drainage pipe and assassinated.

Earlier in the day, we had found Ben Aïssa’s expansive villa in the wealthy suburb of Carthage, just beyond Tunis, but the armed guards at both ends of the street prevented us from making a gracious visit. Later, at Orbit, which sold computers and other office items and which shared the same address as SNC’s Tunisian office, Baya grew suspicious when we asked about her relationship with SNC and the whereabouts of her son. Standing erect and crossing her arms, she said, “I don’t work for SNC anymore.” As for her son, “There are false rumours in the Canadian press about him. Very false.”

A couple of heavy-duty men invited us to hit the road.

Ben Aïssa, as it turned out, was not in Tunisia. Unbeknownst to us, he'd been detained by Swiss police not long before I arrived in Tunis. He was later extradited to Canada, where he would face a criminal trial. In July, fully six years later, he pleaded guilty to one charge of using forged documents related to the infamous McGill University Health Centre (MUHC) bid-rigging scandal, one of the biggest fraud cases in Canadian history.

The case centred on an alleged $22.5-million payment from SNC to a Bahamas company called Sierra Asset Management. Quebec investigators alleged that Ben Aïssa and Pierre Duhaime, who was SNC’s CEO when the corruption scandals erupted, were behind the secret payments to secure the $1.3-billion contract to build the MUHC. Payments were allegedly received by Arthur Porter, the late CEO of the MUHC.

Some 15 other charges against Ben Aïssa were dropped. Since he had already spent 29 months in prison and more than three years wearing a tracking device, he was released. Next in the dock is Duhaime, whose trial is set to begin in January.

But SNC itself wasn't off the hook. In 2015, the RCMP charged SNC with fraud and corruption related to an alleged $48 million in bribes paid to Libyan officials (among them one of Gadhafi's sons) and defrauding various Libyan organizations of $130 million. Two years earlier, the World Bank had banned SNC-Lavalin Inc. and its affiliates from taking part in World Bank—financed contracts for up to 10 years because of “misconduct"—conspiracy to pay bribes—related to the multibillion-dollar contract to build the Padma Bridge in Bangladesh.

None of these scandals happened under Bruce's watch, but they would stalk him as he was trying to reinvent Canada's premier E&C company.

Neil Bruce is virtually unknown outside of the E&C industry, where he is very well known.

Among average Canadians, even among senior executives, he is a low-profile boss, partly by choice—he is intensely private and avoids social media—and partly because he is a foreigner who is not part of the Toronto corporate power base, which considers Montreal an outpost. Born in Scotland, he joined SNC in 2013 as president of its resources, environment and water group. He is an outsider and seems entirely comfortable in that role.

I met Bruce for the first time in late September near Piccadilly, in the heart of London, at Mash, an American-style steak restaurant with an elegant Art Deco interior—my choice. The place was perfect for a long chat over lunch: It's never overwhelmed by midday crowds, it's tucked in the bowels of a sturdy old building on Brewer Street, away from the street noise, and the waiters are pleasantly unchatty.

Bruce could pass for an aging Marine or SAS officer, with his close-cropped, pepper-grey hair—almost a buzz cut—stout physique and lively blue-grey eyes. At 58, he still looks like he could casually knock the next guy's lights out in a pub brawl. But on that day, he was not guzzling anything but sparkling water. He ordered the sea bream, never mind that this was a steak joint.

Bruce doesn't dress like a CEO. He almost never wears a tie, but arrived at lunch in a crisp white shirt and restrained grey suit that whispered middle management. He was still obviously Scottish—the pitch of his vowels was unmistakably so—even though he has spent most of his career outside of Scotland. He said “whilst,” not “while,” and “goot” instead of “good.”

He reinforces the cliché that Scots are tightwads. There are no company cars or jets even though SNC has operations in more than 50 countries. Ian Edwards, the Brit who is president of SNC's infrastructure sector—the Bruce era has seen an influx of Brits—says the boss takes a dim view of executives who run fat expense accounts. “If we go for dinner as a group, it's never extravagant,” Edwards says. “We would never order expensive wine.”

But Bruce does have his extravagances. He's a Formula 1 nut and adores the McLaren Racing team. At times, he has owned expensive sports cars, including a classic Ferrari 328, a Porsche 911 and three BMW M5s. Today, he drives a Range Rover SUV because he and his English partner, Emma, an investment banker, have a seven-year-old daughter, Daisy, who needs ferrying around Montreal and to the ski slopes. While they consider Montreal their home, they keep a house near Henley-on-Thames in south Oxfordshire, west of London.

The three sector presidents I interviewed all had similar views of Bruce: He’s refreshingly direct and transparent, has no big ego, is a strategic thinker, isn’t chatty—you have to read his facial expressions for clues of approval or disapproval—lacks the control-freak gene and gives his executives ample autonomy, offering “gentle oversight,” as one of them puts it. “He’s the best strategic thinker I have ever seen,” says Christian Brown, the East Yorkshireman who is president of SNC’s oil and gas business. “He’s probably the best boss I have ever worked for.”

Edwards says Bruce is a bit of a loner; he tends not to engage closely with his lieutenants when making big decisions until it's really necessary. “I believe this is part of his approach to empower and enable this team to focus while he gets on with his own job of running the company,” Edwards says. “The biggest thing he did was empower management.”

Bruce had a happy childhood that was marred by one tragedy: the death of his mother, Margaret, from a blood disorder when he was in his early teens. At the time, the Bruce family was living just south of Aberdeen, the grey-granite port city in northeast Scotland that would grow wealthy after the North Sea turned into an oil gusher in the 1970s. Bruce's father, Graeme, now in his late 70s, was a factory engineer and transformed himself into a United Free Church of Scotland minister just before his wife's death. “Our parents taught us all the basics,” Bruce says. “It was about education, integrity, fairness, how to treat people.”

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His first job was at Brown & Root, an industrial services company, where he worked on offshore oil projects. His career highlights include the oil company Atlantic Richfield, where he was construction director, and Amec (now Amec Foster Wheeler), a British project engineering company, where he was responsible for the resources division, including its work in the Alberta oil sands. As Amec's chief operating officer and executive director between 2009 and 2012, he pretty much ran the show, and that distinction landed him in trouble with the then CEO, Samir Brikho.

After 14 years, he resigned. Then a storied but disgraced Canadian E&C company called SNC-Lavalin, born in 1911 and associated with some of Canada's most famous engineering projects, including the James Bay hydroelectric system, came knocking.

By then, Duhaime had been tossed, and SNC was being run by Robert Card, a hard-ass American civil and environmental engineer who had served as deputy undersecretary of energy in the early years of the George W. Bush presidency. Card had been charged with the ruthless revamp of SNC’s ethics and compliance standards and swept the broom through the management suite (some 10,000 Canadian employees left SNC during the crisis years, most voluntarily, due to the cloud of uncertainty hanging over the company). SNC needed to recruit an executive or two with the potential to replace Card when he finished his cleanup.

At first, Bruce thought: “You’ve got to be kidding. SNC has all blown up. Why would I want to join a French-Canadian company with ethics and compliance issues?”

Curiosity got the better of him, and he soon figured out that while SNC had a dire reputation problem, it was no financial basket case. That meant the company would not require a full-scale rescue mission, even if it needed a major tune-up. “When you have a company that needs a turnaround, it normally has a weak balance sheet, but that wasn’t the issue at SNC,” he says. “SNC was a combination of a decent balance sheet and a very loyal shareholder base, like the Caisse [de dépôt et placement du Québec], that wanted to see the company survive and come out the other end.”

He joined SNC in 2013 and went on the strategic offensive while Card, as CEO, played defence with a top-to-bottom ethics and compliance fix-it job, which included banning the company from doing business in countries that occupied the bottom ranks of Transparency International’s corruption rankings and banning the use of agents except in countries where they were legally required. Agents are typically local “business partners” who take payments to help secure contracts. In the global contracting world, it is widely known that these payments can in effect be bribes. “There’s 10 times as much work we can do with great customers, with clean customers, in areas of the world where we don’t have to get involved in bribery,” Bruce says.

Bruce's strategic assessment was that SNC was toiling away in a few businesses it shouldn't be and was largely absent from one business where it should, which was oil and gas.

Bruce also determined that SNC relied too heavily on two sectors—infrastructure and mining—the latter always risky because it’s a feast-or-famine industry. Within infrastructure, he figured SNC was wasting its time on civil contracts, such as engineering-lite office buildings and hospitals, where it had no competitive edge and lousy margins, and was competing with efficient construction companies. The civil business was wound down, and three other businesses that weren’t making much money and never would—building management services, French construction engineering and thermal power—were either sold or are being wound down.

Bruce decided that SNC should concentrate on big, long-life, complex projects, such as rail systems, where it could leverage its engineering expertise, faced fewer competitors and, in some cases, could take a piece of the action, as it did with Ontario's enormously profitable Highway 407 toll road, which is 17% owned by SNC (a stake that will soon be sold down to 10% as part of a balance sheet health upgrade). “We can design them, build them and operate them,” he says, describing the ideal SNC project.

To fill the oil and gas hole, in 2014 he bought Kentz, an Irish-born oil and gas and petrochemicals engineering group that was listed on the London Stock Exchange, for $2.1 billion. Kentz boosted employment in SNC's oil and gas division from about 3,000 to 20,000, making it the company's biggest business and giving it a competitive edge in energy projects around the world.

The biggie came two years later, when Bruce paid $3.5 billion for WS Atkins, Britain's top engineering consultancy and one of the world's leading design and project engineering businesses. In its fiscal year, Atkins had revenues of £1.86 billion (about $3 billion) and some 18,000 employees in more than three dozen countries, making it about half the size of SNC at the time. Among Atkins's notable projects were the engineering design for the London 2012 Olympics, the architectural design for Royal Caribbean's monster Oasis of the Seas cruise ship, and construction management for the overhaul of the Statue of Liberty site.

For Bruce, Atkins’s real attraction was its nuclear power plant decommissioning business, whose work in the United States and Europe was thriving as old plants were dismantled. The Atkins nuclear unit fit well with SNC’s own nuclear business, which was also involved in decommissioning work as well as reactor upgrades for the Bruce Power and Ontario Power Generation reactors (SNC owns the licence for the Canadiandeveloped Candu reactor technology). Bruce says SNC’s nuclear division, with Atkins in the family fold, accounts for about 10% of the company’s business and could easily double in the next decade. “Nuclear for us is fantastic,” he says. “Today, we’re sitting on a nuclear business that is truly world class.”

With Kentz and Atkins tucked into the portfolio and the low-margin businesses shunted out the door, by 2017 SNC was putting a smile on Bruce's face—a relatively rare phenomenon. As a bonus, the company would soon settle a $1-billion class-action lawsuit related to corruption allegations in Libya, for a deep-discount $88 million. Even the threat of a criminal trial seemed to be on the wane as Canada signalled it would bring in DPA legislation.

Under Bruce, SNC had essentially become a new company. The top management had been entirely replaced, as had the board of directors. Bruce had reshaped its business, giving it international bulk in six areas: oil and gas; engineering, design and project management; infrastructure; nuclear; clean power (including renewable energy); and mining, which started coming out of a cyclical slump last year.

Analysts were getting the message that SNC had been reinvented, and the “buy” recommendations reappeared. When Bruce went from chief operating officer to CEO in October 2015, the shares were trading at about $40. By mid-2017, they were above $55, and halfway through 2018, they breached $60, valuing the company at almost $11 billion. In the 2017 fiscal year, the company reported $382 million in net income attributable to shareholders, up 50% over the previous year, on revenue of $9.3 billion. The order backlog stood at an impressive $10.4 billion.

When Bruce took over SNC, the company had 35,000 employees. By the end of 2017, it had 52,000 (that number is unchanged today). SNC had become a big, profitable company that was going places, and employee morale began to improve, not just because the crisis years were fading from view, but because, under Bruce, the pressure from the ethics and compliance clampdown unleashed by Card began to ease off.

Marie-Claude Dumas, president of the clean power sector, joined SNC in 2006 and is one of the few senior executives to have survived the upheaval under Card and Bruce. She says there’s no comparing the old, pre-crisis SNC and the new one. She describes SNC under Duhaime, who spent 20 years at SNC before being named CEO in 2009, as “extremely decentralized,” implying that it was run like a collection of fiefdoms.

“Every project manager was like a king or queen, and they were free to do their jobs as they saw fit,” says Dumas. “When he arrived, Bob Card was in crisis management mode, and his focus was on putting in place a first-tier ethics and compliance program. The program was strict. You couldn't even take a client out for a coffee without permission.”

Dumas was happy when Bruce took over the show. “When he came on board, he was able to bring the pendulum back a bit,” she says. “It's a relief to be a normal company again, focusing on the business and clients.” As for Bruce as a manager, she says, “he's very transparent. He's a great boss, and he believes in his people.”

So far, so good. The Bruce era was paying dividends. The winddown of austerity in Europe and Donald Trump's promises to repair clapped-out bridges, roads and ports meant infrastructure spending had nowhere to go but up. Commodity prices were rising, allowing finance bosses to crack open mining and energy development budgets. With all the baddies vanquished from SNC, the corruption crisis was fading and the final cleansing event—the DPA—seemed to be on its way. What could go wrong?

The missing DPA enraged Bruce. He had been optimistic that an agreement protecting the company from a criminal trial was in the bag, all the more so since the federal government had introduced legislation to allow such agreements just a few months earlier. DPAs are used in the United States, Britain and other countries in the belief that it’s often unfair to punish a company and its employees as a whole if the wrongdoing was the handiwork of a few executives or employees.

SNC shares plunged 14% on Oct. 10, the day the company disclosed that no DPA was coming. The following week, Bruce took out full-page ads in leading newspapers to appeal to Canadians for support in the hope of getting the agreement back on the table. “The debate is about what is right for this country,” he wrote, a subtle hint that going after SNC itself, as opposed to the individual sleazoids responsible for the corruption, would risk 9,000 Canadian jobs and perhaps even the Montreal head office, if the sagging share price were to lure bargain-hunting takeover artists.

Meanwhile, Bruce was praying for the best in Saudi Arabia. After Freeland’s tweet, SNC’s bidding on a few Saudi contracts in mining, oil and gas, and infrastructure was “put on hold,” he says.

But nothing truly devastating happened and, after the murder of Saudi dissident journalist Jamal Khashoggi on Oct. 2 in the Saudi consulate in Istanbul, it was Saudi Arabia's turn to be isolated. The whole world was critical of the kingdom, not just Canada. At that point, the Saudis seemed to have more important things to do than beat up on Canadian diplomats and companies. By the start of November, SNC had not lost any business in Saudi Arabia and actually managed to marginally boost its Saudi employment, which includes more than 1,400 Saudi nationals.

As of late October, Bruce said the company's business “seems to be carrying on as normal.” Whether back-corridor SNC diplomacy managed to stabilize the situation or whether the Saudis were still plotting ways to make life difficult for Canadian companies in Saudi Arabia was not known.

But now, with a looming corruption trial hanging over SNC, Bruce has to be wondering whether the restructuring he has directed for three years will need to be followed by another restructuring—this one designed to prevent equity value from vanishing as the threat of a criminal conviction hangs over the company like the Sword of Damocles. “We do have a Plan B in the works,” he told me after finding out about the DPA. “We have to protect shareholder value. We have various options.”

And what would Plan B look like? He wouldn't say, but he didn't deny a Desjardins Capital Markets report that it might include selling the core E&C business in whole or in part; privatizing the company, perhaps with a strategic partner such as a pension fund; or winding down the Canadian operations, which might suffer greatly if any conviction were to land SNC on the federal government's blacklist of contractors.

Here he was, he said, a Scotsman who had lived in Canada for only three years, suddenly “fighting to maintain a Canadian icon.” SNC has asked for a judicial review of the Public Prosecution Service's decision, arguing that the service gave SNC no explanation for the rejection and warning that the looming corruption trial would have “extremely negative consequences” on “innocent” employees, investors, suppliers and pensioners. He is evidently playing a political game, gambling that the service would revive the DPA if SNC, without a DPA, faced serious damage.

Indeed, Desjardins analysts in Montreal say SNC's battered share price might make the company a sitting duck. “We believe that SNC could be an attractive takeover target if its valuation remains depressed,” they said in their Oct. 17 report. Bruce confirmed he has revived the restructuring team he'd formed in 2015.

Before the DPA bomb hit, Bruce said his overhaul of SNC was ahead of schedule and largely successful. “The work around the initial five-year plan is pretty much done,” he told me. “The next bit is for the company to get real organic growth.”

Now, all bets are off. Bruce wanted to be the boss who transformed SNC from national embarrassment to Canadian corporate champion, and the Scotsman almost did it. While he could still achieve his goal—securing a DPA is not out of the question, even if it seems unlikely in the near term—the legacy of certain individuals' reckless behaviour in Libya and Montreal almost a decade ago has ruined his fantasy. Riadh Ben Aïssa, set free, is no doubt a happy man. Neil Bruce is just angry.

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