Gwyn Morgan, SNC-Lavalin Chairman, And Three Directors Leaving Troubled Company

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GWYN MORGAN SNC LAVALIN
Among the departures from SNC-Lavalin will be its chairman, retired oil executive Gwyn Morgan. Photo by Louie Palu/The Globe and Mail | CP

MONTREAL - Embattled engineering giant SNC-Lavalin's efforts to turn the page on its troubled past are moving from the executive suite to the boardroom.

After hiring a series of new executives in the past year, including a CEO and chief financial officer, the company says one-third of its directors including chairman Gwyn Morgan won't stand for re-election at its annual meeting next month.

Including three new directors who will be elected at the meeting and three others directors who joined last year, half of the new 12-member board will have arrived since the company's reputation has been rocked by an internal investigation that uncovered $56 million in questionable payments.

In a letter to shareholders included in a regulatory filing, Morgan called 2012 a year of significant change for the company in which the board has focused on rebuilding its momentum and leadership team.

"Throughout this process, the board aimed to reinforce the corporation's commitment to integrity, and to regain trust among shareholders and the broader stakeholder community," he wrote.

SNC-Lavalin's profits dropped 18 per cent in 2012 to $309 million and its share price declined 21 per cent, before partially recovering to reach $42 in Thursday trading on the Toronto Stock Exchange.

During Morgan's tenure as chairman, the company called in police after the internal investigation led to the resignation of former chief executive Pierre Duhaime.

Michel Nadeau, executive director of a Quebec institute of governance, said Morgan had no choice given the problems that occurred under his watch.

"You have to re-engineer the company and that's what they are doing right now," he said in an interview.

But while changing the board is a good step, the most important challenge is finding the right team to run the company.

"I don't think this change will satisfy investors and turn the company around. The management will do it," he said, adding he's confident in its success.

Duhaime was CEO until March 25, but continued receive payments until Dec. 12 as part of a $5-million severance package that was suspended after he was arrested.

He was charged along with another former executive with fraud, stemming from a contract involving the building of the multibillion-dollar McGill University Health Centre in Montreal.

Allegations have also surfaced that former SNC-Lavalin officials paid kickbacks to the son of dictator Moammar Gadhafi. A company official also told Quebec's corruption inquiry that it reimbursed employees who donated to political parties.

Duhaime's $1.7 million total compensation in 2012 included $511,815 in salary, a $207,000 pension value and $870,000 in other compensation.

SNC-Lavalin also placed the unpaid portion of his severance in escrow until the facts surrounding Duhaime are clarified or resolved.

The new SNC chairman is expected to be Ian Bourne, 65, a former TransAlta executive who has been on the board since 2009 and was its interim CEO briefly after Duhaime left.

Three other directors in addition to Morgan — David Goldman, Pierre Lessard and Edythe Marcoux — will depart the board and be replaced at the annual shareholder's meeting on May 2.

The new directors nominees are former Alcan CEO Jacques Bougie; Lise Lachapelle, a former CEO of the Forest Products Association of Canada; and Alain Rheaume, co-founder of private investment firm Trio Capital Inc.

They join CEO Robert Card, Eric Siegel and Dubai oil executive Chakib Sbiti who joined the board last year.

Meanwhile, SNC said Card, who officially headed the company in October, earned total compensation last year of $6.4 million, including $5.9 million in share-based awards, most of which was compensation for the resignation from his prior employer.

He is slated to outline the main elements of the business strategy he's developed over the last five months at the annual meeting.

Industry observers suggested after Card was appointed that he would consider several paths ranging from a purge of company officials to a sale of its concessions business to exiting certain troubled geographies.

So far, a new organization structure has seen several top officials leave the company, change positions or fill new posts.

"The overall turnover of employees is roughly equivalent to the current industry average," spokeswoman Leslie Quinton said in an email.

Gilles Laramee moved from CFO to executive vice-president of infrastructure, concessions and investments at SNC-Lavalin and entrusted with the company's concession portfolio which includes Highway 407 and AltaLink.

New positions created include a chief compliance officer and a London-based Resources and Environment unit that will be the company's largest. SNC-Lavalin International has become the Global Operations group also based in London and will oversee the globalization of the company's operations.

The company also disclosed that its auditor fees nearly doubled to $9.3 million last year, from $5.5 million in 2011 mainly due to audit procedures and controls flowing from the independent review. The company also paid about $2 million for forensic efforts related to investigations on certain projects.

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