The move by Caisse de dépôt et placement du Québec to publicly call for “decisive and timely” action to redress SNC-Lavalin Group shows that the beleaguered engineering giant’s largest shareholder has lost patience with the company’s board and is seeking an even bigger shakeup at the Montreal-based firm.
On Monday, the Caisse issued a statement advocating a “new strategic direction” that is “comprehensive and capable of reversing the current unacceptable trend of the business” only minutes after SNC interim chief executive officer Ian Edwards unveiled a sweeping overhaul of the company’s operating units and a $1.9-billion goodwill impairment charge. The Caisse’s intervention suggests Mr. Edwards, who took over after Neil Bruce’s departure last month, has little time to turn SNC around, all while it faces a trial on corruption charges involving its former Libyan business.
The measures to hive off SNC’s money-losing resources unit and consider its sale, and the decision to end the practice of signing fixed price contracts, effectively amount to a decision to shrink the company and stabilize its balance sheet in the hopes that it can grow again in the future from a smaller base. But the downsizing of one of Quebec’s most prominent corporations is unlikely to sit well with the provincial government and raises questions about how the once-mighty engineering behemoth came to this dangerous juncture. It is not clear yet that it can ever thrive again.
Just who or what is to blame for that is the subject of plenty of finger-pointing.
SNC-Lavalin is at the nexus of tentacular relationships with the Quebec and federal governments and several public agencies and institutions, including the Caisse and Export Development Canada. Its current chairman, Kevin Lynch, is a former clerk of the Privy Council. Director Alain Rhéaume is a former Quebec deputy minister of finance. Eric Siegel, currently the company’s longest-serving director after joining the board in 2012, used to be CEO of the EDC, which has lent hundreds of millions of dollars to SNC’s clients and provided the company with political risk insurance.
While SNC’s board appears highly qualified, with deep connections to the federal and Quebec governments alike, there are concerns it failed to spot signs of deterioration within the company’s operations and act with enough urgency to fix them. Some major shareholders and analysts think the company has no choice but to exit several businesses. But that could lead SNC-Lavalin to become a shadow of its former self.
The curt tone of Caisse’s statement suggests it wants to see more radical action to stem the bleeding. That, however, could put Caisse chief Michael Sabia at odds with the Coalition Avenir Québec government, which is eager to protect a Quebec-based corporate champion. In Quebec political circles, SNC’s difficulties are seen more as the product of Ottawa’s foot-dragging on the implementation of legislation providing for deferred prosecution agreements (DPAs) in Canada and its bungling of the rollout of the law that was originated, in large part, with SNC-Lavalin in mind.
Mr. Bruce had spent much of the past two years fixated on sparing the company from having to face a trial, and potentially devastating conviction, on charges it allegedly paid bribes totalling $48-million to win contracts in Libya when the North African country was ruled by late dictator Moammar Gadhafi. Mr. Bruce’s attempt to secure a DPA, under which SNC would pay a fine and agree to court monitoring of its activities, failed when the federal director of public prosecutions spurned its request.
The explosive revelations by former justice minister Jody Wilson-Raybould that Prime Minister Justin Trudeau and his senior staff, including former principal secretary Gerald Butts, repeatedly put pressure on her to reverse the DPP’s decision thrust SNC-Lavalin into the public spotlight in an unflattering manner. The company was compelled to do damage control on multiple fronts, denying the fraud charges and explaining it that had implemented extensive anti-corruption measures throughout its operations after a former executive Riadh Ben Aissa was arrested in Switzerland in 2012 on fraud, corruption and money-laundering charges involving the SNC’s Libyan contracts. Mr. Ben Aissa pleaded guilty to the Swiss charges in 2014.
It now appears the fallout from that scandal and additional subsequent charges laid against Mr. Ben Aissa other SNC executives, including former CEO Pierre Duhaime, involving bribes paid on a Montreal hospital contract, did more than just damage the company’s reputation. It seems the company’s management and board, almost all of whom were replaced after the scandal, became too focused on securing a deferred prosecution agreement to the detriment of operational efficiencies.
Mr. Duhaime pleaded guilty this year to one charge of breach of trust. A year earlier, Mr. Ben Aissa plead guilty to a charge of using forged documents in connection with the hospital contract; 15 other charges against him were dropped. Charges against two other former SNC executives were dismissed.
The Jody Wilson-Raybould affair may have disappeared from the headlines in recent weeks. But the Trudeau government has not put SNC-Lavalin’s troubles behind it. The company’s financial difficulties, which have worsened significantly since its hopes of securing a DPA were dashed, have placed the federal Liberals in a tough spot.
Justice Minister David Lametti has not closed the door on granting a deferred prosecution deal to the company, though the poor optics of doing so on the eve of a federal election would appear to rule out that option in the short term. But as SNC-Lavalin continues to struggle, the Liberals risk bearing the brunt of the blame in Quebec for its slide.
The real story behind SNC’s decline is more complicated than that and it will now take far more than a DPA now to put the company back on track. The Caisse gets that.