Companies & Industries

SNC-Lavalin board at fault in corruption scandal

Firm suffered from bad board makeup.

Ex-SNC-Lavalin CEO Pierre Duhaime leaves police custody in Montreal (Photo: Graham Hughes/Canadian Press)

When Pierre Duhaime left police headquarters in Montreal after posting bail for fraud charges on Nov. 28, the former SNC-Lavalin CEO zipped the collar of his jacket up all the way to his nose, obscuring his face from cameras. Though Duhaime is the one cowering from scrutiny, the board at SNC-Lavalin has its own set of questions to answer.

An unprecedented scandal has enveloped Canada’s largest engineering and construction firm over the past year. In March, Duhaime left SNC-Lavalin after an internal investigation found he violated the company’s controls to approve $56 million in payments to commercial agents, money the company couldn’t trace. The payments were requested by Riadh Ben Aïssa, the executive vice-president of construction. He, too, left the company, and has been sitting in a Swiss jail cell since April, accused (but not charged) by authorities in that country of corruption and money laundering related to contracts in North Africa. The charges against Duhaime in Quebec relate to a contract SNC-Lavalin won to build and maintain the McGill University Health Centre. Quebec authorities also charged Ben Aïssa, who oversaw the hospital project.

While the allegations have not been proven in court, the $56 million in improper payments uncovered earlier this year suggests the board of directors did not have a firm grasp on the company’s activities. Further, the improvements SNC-Lavalin made to its internal controls after that probe don’t appear to be enough to address the underlying governance issues. “You need to clean house,” says Richard Leblanc, an associate professor at York University. There are at least two obvious problems with the board, he says. Many of the directors do not have extensive experience in emerging markets, which account for a large chunk of SNC’s business. Another problem is that four of the directors have been on the board for 10 years or more. Directors can hardly be considered independent and objective after serving for such a long time, Leblanc says.

But even tough, seasoned board members can do only so much to prevent bad behaviour. “If someone wants to commit fraud, they will find a way to do it,” says Richard Powers, a senior lecturer at the Rotman School of Management.

Other companies facing scandals have nonetheless made proactive moves to restore credibility. In February, HSBC disclosed it could face charges in the U.S. related to a money-laundering probe, and that a separate investigation was under way into its dealings with Iran. The same day, HSBC replaced two board directors with no discernible expertise in banking and risk management. One of those replaced was Gwyn Morgan, the chairman at SNC.

No one has left SNC’s board since the scandal began earlier this year. The most recent to depart (apart from Duhaime) was Sen. Hugh Segal in 2011 after 13 years. A shakeup is unlikely, given the entrenched nature of the board, at least until more is known about the charges against Duhaime and Ben Aïssa. Only then can SNC-Lavalin hope to rebuild its reputation.