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A man walks past the headquarters of SNC Lavalin in Montreal on Nov. 6, 2014, three months prior to the RCMP formally laying charges for allegations of bribery and corruption .Paul Chiasson/The Canadian Press

A surprise third-party public revelation that a company or one of its senior executives or employees behaved in an unethical or unacceptable manner in the past is news that no board wants to hear. Trust and confidence, the bedrock assets of any organization that take years to build, can be badly shaken at moments like this, and how boards handle the issue determines the quality of the outcome.

The dilemma boards face is that the event they must deal with often occurred at a time when none of the current directors or management were present. In addition, applying subjective judgment, in the absence of guidance from past practice in dealing with previously acceptable behaviours viewed under present-day governance norms, and current laws and regulations, is problematic.

One of the most difficult issues the board must contend with is the fact that any information surrounding the asserted behaviour is almost always imperfect and indeed may not even be true. With the increasing oversight of boards by a wider spectrum of interested parties other than solely investors, the need to act carefully, but expeditiously and in a transparent manner is easy to say but very tough to do.

There are legal implications (which can vary by geography) to be mindful of as well. For example, if the information from the past came from an organization’s whistle-blower policy or was provided under a judicial or regulatory inquiry of a related matter, there are protections and rights afforded to those providing this information that must be considered.

We have attempted to highlight three case studies that illustrate, as best we can from publicly available sources, the importance of considering the principles in this article without making any judgment on the respective companies’ board practices at the time.

Soulpepper

After a harassment scandal that forced the departure of artistic director Albert Schultz in early 2018, Soulpepper Theatre Co. said its core mission has always been “to provide a safe community for its exceptionally talented group of professionals.” But an investigation by CBC’s the fifth estate that year raised questions about how Soulpepper had handled similar harassment allegations in the past. The CBC investigation indicated that management misled staff about the earlier 2016 departure of theatre director Laszlo Marton. An e-mail, written by Mr. Schultz, said: “Due to complications with his work visa, Laszlo Marton will not be able to direct.” What members of the community were not told was that Soulpepper had apparently dismissed Mr. Marton because of allegations of harassment and a subsequent investigation. It would be another six months before Soulpepper was forced to break its silence over the Marton affair, when Hungary’s #MeToo exploded in October, 2017, with allegations of harassment against Mr. Marton. In the wake of the allegations, Soulpepper’s board of directors issued a statement vowing to “listen, act and make meaningful change.”

Lessons learned: Failure to take immediate ownership, not implementing disciplined governance steps or doing full diligence on facts and what else may be happening and having a well thought out communications plan can lead to damage to an organizations’ trust, credibility and ongoing viability.

TMX Group

On Nov. 28, 2019, the board of TMX Group Ltd. announced it was reviewing allegations over the chief executive officer’s past conduct. It was reported at the time that employees had also complained of bullying and a toxic workplace. On Jan. 10, 2020, TMX announced that Lou Eccleston, the CEO, would retire early. The company had launched an investigation after allegations came to light that he sexually harassed employees when he worked at data giant Bloomberg LP in the 1990s. The allegations were published the previous November in an investigative story by Business Insider. TMX launched an “expedited but thorough investigation,” according to the company, and the board said the probe “found no evidence that Mr. Eccleston engaged in sexual harassment or sexual misconduct while employed at TMX.” An expert employment lawyer was reported to have been engaged to support the board. The company said that Mr. Eccleston “believes it is in the best interests of the TMX Group, including its employees and stakeholders, for him to retire early.”

Lessons learned: Taking ownership and responsibility, disciplined governance steps, launching an investigation, engaging expert counsel, being agile in decision making and having a crisp communications plan in place are effective methods to manage through this type of crisis.

SNC-Lavalin

On Feb. 19, 2015, the RCMP formally laid charges against SNC-Lavalin Group Inc. and two of its subsidiaries for allegations of bribery and corruption related to how it obtained major construction contracts in Libya, many years ago. Prior to these charges, the Swiss government had initiated a similar investigation on the same subject against two of SNC’s employees in May of 2011.

In February, 2012, SNC-Lavalin parted company with Riadh Ben Aissa, an SNC executive who had been under investigation on corruption allegations. The company news release stated “all employees must comply with our code of ethics and business conduct,” but fell short of explaining the what or why behind SNC’s decision.

Lessons learned:

It appeared SNC-Lavalin had two cultures, the one that was written and the one that was practised at home and abroad. There were other scandals of corruption such as the McGill University Health Centre investigation of SNC-Lavalin, once more accused of using bribery to gain lucrative contracts. These flags went unnoticed and not until formal charges were laid did the board appear to spring into vigorous action. Many of the directors were not present at the time these events occurred and the information they were dealing with was intertwined with criminal investigations, which undoubtedly made the board’s communication and disclosure process problematic. Furthermore, given the length of time these types of behaviours were occurring it called into question the reliability of SNC-Lavalin’s controls as it pertained to its ethics and conduct policies.

Emerging best practices, policies and processes

  • Taking immediate ownership and responsibility to address this type of event is paramount. Not necessarily acknowledging the allegations to be right or wrong but clearly signalling “all claims are taken seriously and the board’s disclosure process will be timely and truthful.” That is a message that helps to maintain trust that the board will deliberate taking all stakeholders interests into consideration.
  • Disciplined governance steps need to be taken to deal with these matters. Ad hoc, or reactionary measures are not helpful and emotion needs to be dialled down in the boardroom to maximize the clearest thinking. Despite the pressure to be seen to be taking decisive action quickly, the better but harder approach embraces a reflective, iterative and thoughtful process. The chair’s role in setting the overall tone and approach is critical.
  • The values of the company and its ethics policy tend to form the best guiding principles of how the board makes decisions or navigates its way through these types of issues.
  • Early in the process, engagement of outside expertise should be considered. Management may be conflicted and/or the extra help can add to the efficiency of the company’s response process.
  • Having talented and courageous directors on board with a seasoned chair are essential ingredients for success. It is too late to look for these types of individuals once events like this unfold. Diversity of thought on boards (including gender, race and age), helps to mitigate group-think or not reasonably testing the board’s decision against a broader stakeholder constituency.

Looking ahead

For boards to build and preserve shareholder value and simultaneously retain broader stakeholder trust in the face of dramatic unexpected retroactive applications of current ethics and governance policy, requires that they have special skills and processes in place. In fact, a board culture that is receptive to challenge and regularly thinking the unthinkable as a means to continuously prepare themselves for the unexpected, will perform best in these types of circumstances.

High performing governance structures are value based and purpose driven. In the face of adversity this gives boards the tools and guidance to make the best decisions regardless of the passage of time or the absence of complete information. It also helps them avoid the trap that current laws or regulations may allow them to do something in the short term that unwittingly undermines their core values. Coupled with a broader purposed entity, diversity on the board and within the organization is a tremendous asset to mitigate retroactive myopic decision making.

The final takeaway is that there is no formula or playbook that fits all boards or cases. Boards are encouraged to use their organization’s values as a lens to consider ethics transgressions from the past and take a broader perspective of the company’s purpose when landing on decisions to deal with these types of events.

Don Lowry is a corporate executive, director and current chair of Capital Power Corp.

Tony Gaffney is a corporate executive and director, currently on the board of Altus Group Ltd.

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