CBC Investigates published an interesting article on April 15, 2019: “What the SNC board may have known about the firm’s dealings in Libya – like the office safe with $10M cash.” The article comments there was no question that millions of dollars in bribes were paid to the Gadhafi regime in Libya to win lucrative contracts for SNC. The article quotes the then Board Chair that the Board of Directors had no means to detect the payment of such bribes. Really – the Board had no means to know if there were questionable payments being made? That makes me think of the ostrich with its head in the sand. (Full disclosure – Years ago, I acquired 200 shares of SNC wanting to show my support for what I thought to be a leading Canadian company and which, in writing, had corporate values which I respected. My 200 shares are a pittance of the over 160 million shares which the company has issued.)
According to the CBC article, a former SNC executive is cooperating with the RCMP and could have interesting information to provide in court on what other former executives and former Directors knew about the millions in bribes and fraud. Could this be the reason why the company seeks a deferred prosecution ruling and hoping to avoid time in court? The then Directors of SNC are prominent individuals in Canadian business and politics and probably very interested in not being dragged into a criminal proceeding.
Companies which choose to do business in other countries must comply with The Corruption of Foreign Public Officials Act (CFPOA). This is Canada’s anti-corruption law passed in 1999. The Board of a company conducting business in other countries must be aware of this act and require the company and its employees to comply with the legal requirements. I have had Directors of internationally active companies tell me that they chose not to do business in certain countries because of issues like the requirement for alleged facilitation payments or low labour protection standards. SNC’s disregard for laws was not just in its international activity – there was also the over $22 million bribe paid around 2010 by SNC to the hospital executives in Montreal in order to “win” the bid.
So the question is whether the Board of SNC would have known or chose to have known how the company was conducting business. In a construction company conducting business domestically and internationally, the Board would have known that there are risks regarding regulatory compliance and that careful monitoring of management’s action regarding compliance would be required. All Boards have access to parties independent of management to assist the Board in gaining assurance that business activities are in fact compliant with relevant laws and the company’s own corporate values and ethics. It is the Board’s duty to protect the company and gaining information from parties independent of management is a valid action by the Board particularly in areas of high risk. Independent advisors can include external auditors, internal auditors, investigators, consultants, legal counsel.
SNC’s public disclosure document states under general obligations of the Board: “It must uphold the desire of the Corporation to maintain a reputation for high standards of business conduct …in accordance with applicable corporate, securities, … and other relevant legislation…” Great articulation of one of the Board’s responsibilities. So that is the responsibility and the Board needs to take action to in fact fulfill that responsibility.
The CBC article comments that the Board was aware of business oddities – millions spent on hosting a Gadhafi, and millions kept in cash in a company safe. The Board was informed on these issues in 2008 and 2009 and therefore had knowledge of sloppy company practices. Did the Board demand that the executives halt these types of activities and demand that actions be in compliance with its “high standards of business conduct”?
In spite of the oddities, did the Board chose to not want to know if the company’s actions were legit? It wasn’t until February 2012 that the Board arranged for an independent review by its legal counsel of certain company transactions. The Board accepted the recommendations of the independent review at its conclusion in March 2012 to introduce better policy on ethics and business conduct and prevention of management override of internal controls. These sound like actions that should have already been in place. Management override is an issue that auditors have been examining forever – how did that get missed by the internal and external auditors? And remember the Board’s role to maintain the company’s reputation for high standards of business conduct – what action was the Board taking to in fact fulfill that responsibility? Sometimes Boards do not want to know what is really going on. Many times Boards receive reports from independent advisors, give the report some level of attention, and then pass the report onto management to deal with, without any serious follow up by the Board. Motions, not action, nor results.
In the SNC case it would be interesting to see how the members of the Board assert that they did their job to protect the reputation of the company. The SNC case is not about Jody vs Justin, it is about a company and its Board of Directors being held accountable for its actions. How about upholding the laws of Canada?
Fay Booker is principal of Booker & Associates, a consulting firm focused on promoting excellence in good governance and enterprise risk management.