In the week following the arrest in November on fraud charges of Pierre Duhaime, relieved of his post as CEO of SNC-Lavalin Group Inc. eight months earlier over $56-million in unauthorized payments, the Montreal engineering giant bagged four plum contracts. On its own or as part of consortia including respected partners like General Electric Co., the Saudi oil Leviathan Aramco, and large private equity funds worldwide, SNC was tapped to build state-of-the-art power stations in Poland and Newark, N.J., to manage oilfield services in Saudi Arabia, and to build a $1.5-billion, 350-kilometre power transmission line in Alberta.
It seemed that the “division of labour” credo of Duhaime’s permanent replacement, Robert Card, was working like a charm. Card and SNC’s board had agreed he should focus on day-to-day business while the board dealt with a scandal over alleged bribes at home and abroad that just wouldn’t quit.
It might have seemed to Card, 59, a U.S. native and 38-year veteran of leading U.S. engineering firm CH2M Hill, that outsourcing SNC’s corrupt-culture issues to his board was both novel and efficacious. But it’s neither.
The chief ethics officer of any enterprise is the CEO, by choice or default. CEO since October, Card has learned the hard way that the continuing probes into alleged episodic moral failure at SNC (principally suspicions of bribery and other improper payments) now underway by Montreal’s anti-corruption squad, by the RCMP, and by Swiss authorities, have intruded upon his efforts to manage the basic business. Renowned Montreal billionaire investor Stephen Jarislowsky, largest SNC shareholder with 14 per cent of the stock, had counseled that it’s important for Card “not to waste his time on old problems.” But the “old” problems, including suspicions of wrongdoing in SNC’s success in winning a huge, $1.3-billion contract to build a “superhospital” in its Montreal hometown, don’t carry an expiry date.
And so, scarcely a month on the job, Card faced up to reality, becoming hands-on with the ethics deficiencies at his new firm. He is implementing a thorough overhaul of SNC’s day-to-day practices in securing contracts at home and abroad. Scaring up contracts is a key function of enterprises like SNC, one of the world’s largest engineering and construction firms, whose 32,000 employees currently are at work on projects in more than 100 countries. That requires them to develop and hopefully benefit from carefully nurtured relationships with decision-makers worldwide who approve contracts, and the often shadowy agents influencing them. That is the day-to-day business of SNC: Constantly winning contracts without crossing the line into morally dubious conduct.
Scandals have a life of their own, well beyond the control of CEOs and boards. As 2012 unfolded, SNC found it appropriate to part with four top officers, and to demote chief financial officer of whom vice-chair and acting CEO Ian Bourne earlier said: “We have complete, absolute confidence in our CFO.”
The board has abruptly decided some of its directors should not stand for re-election in 2013, without naming them. The board has also acknowledged “material weaknesses” in its practices, without naming them, either, and the role they played in a $1.2-billion Bangladesh bridge project where bribery may have been involved, or an alleged scheme in which unidentified agents associated with SNC were supposed to spirit one or more members of Muammar Gaddafi’s family out of Libya.
With considerable fanfare, the firm detailed its new ethics-compliance hotline, its new committee to vet contracts sourced from foreign reps, or “agents”; and integrity checks on new and current SNC agents that it has hired the non-profit anti-bribery TRACE International to perform. Fair enough, except that all these protections and additional safeguards should have been in place decades ago.
Investors have launched the inevitable class-action lawsuits against SNC over its governance, actions that will be tough to defend since none other than Jarislowsky has faulted the board. The Caisse de dépôt et placement du Québec, also a big long-term SNC investor, has publicly seconded Jarislowsky’s criticism.
To his credit, Card has dismissed speculation before his appointment about an SNC in retreat, that would soon withdraw from the world’s roughest neighbourhoods and sell its equity stakes, or “concessions,” in assets as varied as water systems, airports, bridges, mass transit systems, power plants and other infrastructure SNC has built. But Card is intent on keeping those assets, which account for 27 per cent of total earnings, and whose profitability in SNC’s latest quarter jumped by 20.7 per cent while the basic business suffered a 15.1 per cent drop in profits.
A growth-oriented Card is also determined to bolster SNC’s capabilities and client roster in hydrocarbon, water and environmental projects, where the firm has a weak presence, and to more vigourously exploit a massive U.S. market that currently accounts for just 4 per cent of SNC revenues.
Putting SNC on a growth trajectory, rather than retreating, is likely Card’s best hope of revitalizing a global workforce that will continue to be under a cloud for some time. Apart from the continuing police investigations and the class action suits, questions about the United Nations-funded Bangladesh bridge project have made SNC ineligible for U.N.-financed projects in the developing world markets in which SNC traditionally has secured a great many of its contracts.
Card and SNC’s board would be well-advised to speak about what lies behind the many allegations over its conduct. And they should replace a chair dating from 2007, Gwyn Morgan, who green-lighted Duhaime’s appointment in 2009, and on whose watch SNC has lost $1.1 billion in shareholder value since Duhaime’s departure.
Russ Girling and his company, TransCanada Corp. (TC), will continue next year to be a global punching bag for the legions of people who equate the Athabasca tar sands with the extinction of our species. One of the world’s oldest and largest operators of natural gas and oil pipelines, TC is unavoidably at centre stage in debates over both global warming and conventional pollution resulting from air and water poisoned by production, transmission and use of fossil fuels.
But Girling, 49, accustomed to controversy over each of his industry’s projects, has taken U.S. President Barack Obama’s moratorium last year on TC’s proposed $7.6-billion https://www.thestar.com/topic/keystonepipelineKeystone XLEND heavy oil pipeline in stride, making for a busy 2013.
TC has of course filed for U.S. approval a revised route for Keystone XL, which is to run through six U.S. states to refineries on the U.S. Gulf Coast in Texas. It tries to accommodate concerns raised over the first proposal.
In the meantime, TC has a $2.3-billion crude pipeline underway to relieve the notorious congestion at the hub at Cushing, Okla., which promises both to lower pump prices and achieve higher profitability for producers.
TC also has a mega-project underway in Mexico, where it has already built and operates the major Guadalajara and Tamazunchale gas pipelines. While breaking ground on an expansion of the latter this year, TC will start work on the 530-kilometre El Encino-to-Topolobampo pipeline awarded to it by Mexico’s state electricity authority, Comision Federal de Electricad (CFE).
Girling is also a player, along with its crosstown peer Enbridge Inc., in the mooted project to carry Alberta crude to Eastern refineries and markets. Girling has indicated this is both economically and technically feasible, by converting part of TC’s Canadian main line gas pipeline to crude. In contrast with Keystone, calls for an east-west crude artery originated outside the company, especially with MPs in Atlantic Canada.
Canada might be one of the world’s largest oil and gas producers and reserve holders. But much of our oil is exported, while Central and Eastern Canadian markets have long been reliant on imports from the Middle East and South America. Meanwhile, Atlantic Canadian refineries are running well below capacity, and one is slated to close. Canadian energy security and job creation make solving this long-standing issue worth taking a hard look at.
TC has more than once lit an exploding cigar in its Keystone XL ambitions. The Alberta oilpatch came on too forcefully in its Washington lobbying, in the aftermath of a Deepwater Horizon catastrophe in which the Obama Administration and U.S. regulators felt, with reason, that the U.S. had been misled over promised safety provisions by a smooth-talking BP PLC.
TC also appeared to show little interest in the parade of celebrity and grassroots demonstrators at the White House protesting the Keystone XL, as if the contest was between the industry’s money and D.C. connections and the compelling TV images conjured by the protesters. There has been no continuing dialogue between the industry and environmentalists, wildlife experts, climate-change scientists and others concerned with the Keystone XL megaproject.
TC has been fixated on those protesters who simply hate the Athabasca tar sands, pretty much deciding that this worldwide group is a lost cause for anything TC might say in its defence. It similarly has no response, not publicly at least, to critics who point out that Keystone XL would carry Athabasca oil to non-U.S. markets, while the pipeline itself — and the risks inherent in pipeline management — would be borne by the U.S. alone. This has been Enbridge’s dilemma, as well, with its proposed Northern Gateway pipeline that would carry Athabasca oil to world markets, crossing the several mountain ranges of B.C. and putting at risk of tanker spills a Pacific coastline where memories of the Exxon Valdez disaster 24 ears ago are a recent memory.
TC’s case, if Girling chooses a course correction in humility this year, is that Athabasca oil that makes its way to non-U.S. markets by way of a Keystone XL will increase world supply and thereby put downward pressure on the world price that determines how gasoline and home heating fuels are priced from Karachi to Fort Wayne, Ind.
He can make the convincing case that oil America chooses not to import from Canada — the current sole destination of Athabasca output — will have to be acquired from the likes of Russia, Nigeria, Venezuela and Saudi Arabia, politically volatile regions whose safety and environmental practices and regulatory oversight do not bear comparison with those of North America.
As to Athabasca itself, for those who cannot abide its mere existence, Girling, with an assist from Ottawa, could assert that the tar sands account for just 5 per cent of Canada’s CO2 emissions, and that Canada itself accounts for a mere 2 per cent of global greenhouse-gas emissions. In a rare comment on this contentious point two years ago, Girling said “it seems odd to me that an operation (Athabasca) that produces one-tenth of one per cent of global emissions became the lightning rod.”
The stakes for Canada are enormous, as set out in a Canadian Energy Research Institute report last year, which estimates that failure to complete projects to transport landlocked Athabasca oil to port and to world markets would see Canada forego an estimated $1.3 trillion in GDP and $276 billion in royalties and taxes over the next two decades.
Three things have to happen, preferably this year, to put reason ahead of emotion on this issue. Demonstrators have to consider the alternatives to Athabasca, which include “fracking” in America’s backyards (underground explosions, or hydraulic fracturing, to release hydrocarbons trapped in shale formations); a drastic reduction in consumer consumption of fossil fuels; and a similarly drastic acceleration of alternative energy technologies. Of those three, we’ve seen hyper-activity only on the first.
The second is that government, notably Ottawa, has to make a compelling case for the safety and economic benefits from exporting our oil and gas — in contrast with the downright belligerent regard the Harper government has shown to Athabasca detractors.
Finally, the industry has to engage with its critics and end the dialogue of the hard-of-hearing that has characterized this issue from the beginning.
(Full disclosure: The author owns shares in TransCanada Corp.)
It may be far too early to call the eurozone crisis over, but to paraphrase Churchill, we seem to have passed “the end of the beginning,” with 2013 as a year of promise in stabilizing, at long last, the declining fortunes so evident in the hardest-hit Southern European nations.
Mind you, the worst European economic crisis since the Second World War still routinely delivers fresh negative surprises. Few would have anticipated the depths and duration of economic distress in Spain, Europe’s fifth-largest economy with its 25 per cent unemployment rate. Or the ouster this month of Mario Monti, the supremely competent technocrat who was Italian prime minister until Silvio Berlusconi abruptly withdrew his party’s support from Monti’s coalition government to seek yet a third tenure as PM.
But it’s Angela Merkel, 58, the German chancellor and leader of Europe’s largest economy, who remains the point of reference in healing the world’s largest economy, a European Union with 27 members and a GDP slightly larger than that of the U.S., at about $16 trillion. What will Merkel think of a third premiership of Berlusconi? Have the French taken themselves out the loop in electing a socialist president, François Hollande, who may not get along with Berlin nearly so well as the conservative team of Merkel and Nicolas Sarkozy?
Even if, especially on this side of the pond, such questions preoccupy foreign-policy experts, the reality is that Merkel’s conservatism would easily be taken for progressivism elsewhere. In this year when even Britain, arguably the most dynamic European economy of the 2000s, is mired in a triple-dip recession, Merkel is the non-ideologue understandably counted on to achieve consensus among 17 eurozone nations and 27 EU members to restore the continent to an economic powerhouse.
A prime reason for hope that Merkel will play a more successful role in the economic debacle in 2013 than the previous two years of the crisis is Merkel’s remarkable political skill at home, where she is her country’s most popular politician. “Relentlessly matter-of-fact,” a criticism of the chancellor recently made by the left-leaning Der Spiegel, is in fact one of Merkel’s great strengths, after a 2012 marked by the rise of racist parties across Europe — even in Scandinavia — expressing their economic grievance in the ugliest way.
The passion found lacking in Merkel by Der Spiegel in an unflattering profile this month (the day the Berlin Wall fell the then-Eastern German went to the sauna, we’re told) is the same capacity for thinking things through that has kept a Germany prosperous despite its heavy reliance on exports to a hard-hit Europe.
Southern European economies in the grips of austerity find Merkel a convenient target of blame; she is often depicted by protesters as a Nazi. But there she was in the lion’s pit in Athens earlier this month to confront detractors. Germany in fact has shovelled more relief funds into troubled Greece than its eurozone partners, at considerable political risk to Merkel back home. Yet just a week after making concessions to Greece, delegates at her Christian Democratic Union’s annual conference re-elected Merkel as party leader with almost 98 per cent of the vote.
Merkel’s task in 2013 is to leverage her status as Europe’s second-longest-serving head of government (behind only Luxembourg’s Jean-Claude Juncker) into persuading Southern Europe to adopt needed, drastic reforms of public finances and currently inflexible working conditions. And just as important (and touchy), embracing the creation of a European banking union still under negotiation, and an accompanying European banking supervisor, to prevent the same reckless practices that brought down Wall Street and currently threaten Europe’s largest lenders.
If Merkel is to be faulted on major tactics, it has been her reluctance to explain to Germans that their economy is heavily reliant on pan-European prosperity. The frustrations with Merkel among liberal economists worldwide give rise to the harsh assessment of arguably the most impressive chancellor since Bismarck. Peter Ludlow, historian of the European Council in Brussels, doubts non-Germans grasp the importance of consensus and coalition-building in German politics, which especially riles the notoriously impatient Americans. “The Anglo-Saxon mind does not understand her,” Ludlow recently told Quentin Peel, chief German correspondent of the U.K. Financial Times. “But people slowly realize she has been around for a long time, and pulls all the strings.”
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