Neil Bruce, president and CEO of SNC-Lavalin, addresses the engineering company's annual shareholders meeting in Montreal on Thursday, May 2.Paul Chiasson/The Canadian Press
SNC-Lavalin Group Inc. shareholders signalled displeasure with the board and chief executive this week to an extent not seen since the engineering giant plunged into crisis more than five years ago.
Roughly 8.5 per cent of votes cast for this year’s proposed directors were withheld for SNC-Lavalin CEO Neil Bruce, while 11.3 per cent were withheld for chairman Kevin Lynch, according to a summary of the results released by the company Thursday. The percentage of votes cast withheld for other board members range from 3.4 per cent to 9.2 per cent, the results show.
While the percentages appear low, such dissent is unusual in corporate elections in Canada. It underscores that the senior leadership of SNC-Lavalin does not enjoy the backing of a significant portion of their shareholders.
“This is unprecedented” for SNC-Lavalin in recent years, said Michel Magnan, a corporate governance expert at Montreal’s Concordia University. “I think it sends a strong signal of dissatisfaction with the company’s current course of action.”
SNC-Lavalin is enveloped in a major legal and reputational crisis that threatens its future. The company is charged with bribery and fraud related to its business dealings in Libya between 2001 and 2011. It tried but failed to convince federal prosecutors to enter talks on a settlement that would allow it to pay a fine and agree to independent oversight while avoiding trial.
Mr. Lynch and Mr. Bruce have played key roles in lobbying publicly and privately for the company. Mr. Lynch’s behind-the-scenes role in trying to sway the federal government on the matter was revealed as the political scandal unfolded.
At the same time, Canada’s biggest engineering and construction company also faces significant challenges on several key pieces of its business, such as oil and gas and mining, that are hurting its financials. The company on Thursday announced it was stepping up cost-cutting efforts in the wake of disappointing first-quarter results and swelling debt levels.
“It’s just a complete mess,” Stephen Jarislowsky, a billionaire investor and former SNC-Lavalin director, told BNN Bloomberg this week. He said he doubts the engineering company can be rebuilt, since it has lost good employees and faces a long criminal trial that may go on for years.
Mr. Jarisloswky opposes Mr. Bruce’s plan to sell a 10-per-cent stake in Ontario’s Highway 407 toll road, arguing the company is unloading a piece of a growing and profitable asset in order to support an engineering business the market considers to have little value. He has urged the company to hold a vote on the planned sale.
SNC is expected to announce next week whether the stake will be sold to the Ontario Municipal Employees Retirement System for $3.25-billion or whether the highway’s existing shareholders will exercise their right to match the offer. The company has said it will not hold a vote on the sale.
The storm enveloping SNC-Lavalin began in February, 2012, when the company first disclosed it had discovered financial irregularities it couldn’t explain, namely undocumented payments later discovered to be bribes. Since then, only once have SNC investors cast protest votes topping 5 per cent against multiple directors up for re-election, according to the System for Electronic Document Analysis and Retrieval (SEDAR), a mandatory document filing and retrieval system for Canadian public companies. That was in 2013, when five directors received protest votes over 12 per cent.
Asked to comment on the level of votes withheld, SNC-Lavalin spokesperson Daniela Pizzuto said: “We thank our shareholders for reconfirming their confidence in the board of directors yesterday during our annual general meeting." She declined to comment further.
For major Canadian companies that are widely held by the public, votes withheld from directors are often 1 per cent to 2 per cent, or fewer. But if the company has faced controversy, or a proxy advisory firm has recommended a “withhold” vote from certain directors, the numbers can creep high into the single digits and sometimes can exceed 10 per cent.
Neither Institutional Shareholder Services nor Glass Lewis & Co., two major advisory services, recommended “withhold” votes for SNC’s board members.
In electing corporate boards in Canada, shareholders do not have a choice to say “yes” or “no” to individual directors. Instead, they typically must vote in favour of a director or “withhold” the vote. Companies are gradually introducing policies where directors who have 50 per cent or more of votes withheld must submit a resignation. Those situations remain very rare.
SNC-Lavalin’s shareholder base includes a large number of institutional shareholders such as the Caisse de dépôt et placement du Québec, which owns more than 20 per cent of the company, and the Canada Pension Plan Investment Board. More than 80 per cent of the company’s investors are based in Canada, Mr. Bruce has said.