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Business Commentary SNC-Lavalin’s probable exodus from Canada is a national shame

Head offices abandon Canada in two ways – slowly or abruptly.

The slow approach sees the head office, usually after a foreign takeover, gradually lose relevance, to the point it becomes a branch plant and simply fades from view over several years. The abrupt approach, again usually after a foreign takeover, sees the head office vanish virtually overnight, as Falconbridge did a decade ago after it was snapped up by mining giant Xstrata.

SNC-Lavalin Group Inc. has been slowly disappearing from Canada for years. That’s mostly SNC’s fault – it hasn’t won enough work to keep its Canadian headcount intact.

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Now it’s on the verge of an abrupt departure, but that’s not entirely SNC’s fault. No, it’s not about to be bought by a foreign predator who will turn off the lights at the Montreal head office. SNC’s business in Canada could vanish because the Public Prosecution Service has refused to grant it a deferred prosecution agreement (DPA), meaning it faces a criminal trial that could easily destroy its ability to win government contracts. As its name becomes toxic, SNC might be forced to find a non-Canadian address.

We now know that SNC has already contemplated this scenario. On Thursday, the company admitted it had warned federal prosecutors in the fall that it could break itself up and move its headquarters outside of Canada. SNC called it a “potential worst-case” scenario if the criminal trial for bribery and fraud charges, the result of an alleged orgy of corruption under previous management, were to go ahead.

The pity is that DPA legislation in Canada exists and may have even been drafted with the specific view of sparing SNC from a criminal trial in exchange for a negotiated fine and the company’s commitments, already in place, according to chief executive Neil Bruce, to clean up its ethical and compliance acts. Mr. Bruce says SNC now finds itself in the absurd situation of competing for contracts with engineering and construction companies that have received DPAs, which are often used in Britain, the United States and other Group of Seven countries.

SNC’s departure would come as a serious blow to Canada Inc. Since the middle part of the past decade, Canada has lost dozens of head offices as Canadian investors lunged at the prospect of fat takeover premiums. Many, perhaps most, of the foreign companies doing the buying promised to keep the Canadian head office intact. But those assurances proved to be either wildly exaggerated or outright lies.

Among the head offices that have disappeared are Alcan, Dofasco, Inco, Molson and a chunk of the Canadian oil industry. Recently, Goldcorp Inc., Canada’s second-biggest gold producer, accepted a takeover offer from Colorado’s Newmont Mining Corp., meaning that Goldcorp’s Vancouver office faces a serious downgrade.

Aside from the loss of stock market listings, the elimination of large head offices rots the country’s social fabric. Head offices provide high-paying, high-skilled jobs and create an ecosystem of spinoff jobs, from accountants and chefs to limo drivers and lawyers. Head offices bolster the financial services industry, which underwrites the bond and equity offerings and sponsors the arts and charities. When corporate headquarters disappear, so does talent.

SNCs departure would be a severe blow to Montreal, which is rather short of big-name headquarters. Bombardier and SNC were the city’s brand-name global heavyweights (though it has a few others, such as Alimentation Couche-Tard and Saputo, that are growing in stature). The future of both is an open question. Bombardier is shrinking – it unloaded its money-losing growth project, the C Series jet, in 2017 to Airbus – and SNC might soon just jog to the border, swivel 180 degrees and extend its middle finger to the country that refused to negotiate an out-of-court settlement.

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SNC was already in slow-motion retreat in Canada. In 2012, it had 20,000 Canadian employees. Today, the number is about 9,000. The rest of the employees – 43,000 of them – work outside of Canada.

The Canadian headcount could shrink fast in the next few years as the company finds it hard or impossible to get new work. Its bidding partners are already bailing out, the company claims, for fear that a criminal conviction will make it ineligible to win public-sector work. In an interview with The Globe and Mail in London this week, Mr. Bruce said: “Over the last couple of months … companies that have traditionally worked with us are now saying, ‘What happens if we partner up with [SNC] in a federal contract in Canada and further down the line SNC is banned from federal work – are you going to indemnify us?’ ”

It’s hard to blame SNC for contemplating an exodus (although it would have to pay off a loan to the Caisse de dépôt et placement du Québec before hitting the road – the loan carries a condition that requires the headquarters stay in Montreal). The Canadian business could be shunted into a separate company – ownership to be determined – and wound down over the years as existing contracts, such as replacing the Champlain Bridge in Montreal, are finished. The headquarters could be moved to London or Texas, where SNC already has big offices. (Mr. Bruce, who is Scottish, recently sold his Montreal house and spends a lot of time in London.)

You can bet SNC would rebrand itself outside Canada since its name is now associated with corruption cases, even though they happened many years ago. Mr. Bruce said he spends a lot of time running around the world telling clients and employees that the corruption incidents “didn’t happen two months ago; they happened seven to 20 years ago,” and that SNC has cleaned itself up.

Justin Trudeau and his cronies in the Prime Minister’s Office can take some blame for SNC’s probable downfall in Canada. They pushed hard – in secret – to convince Jody Wilson-Raybould when she was justice minister to intervene in the corruption case against SNC. That strategy blew up in the Prime Minister’s face.

Instead, Mr. Trudeau from the very start could have argued in public, to everyone who would listen, that SNC is a proud Canadian company that is globally competitive and the employer of thousands of highly skilled workers. He never convinced the public that a criminal trial could eradicate SNC from the Canadian map.

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Today, many Canadians read the headlines and believe, wrongly, that SNC is a sleazy organization to this day. No wonder SNC’s Canadian business has become more of a liability than an asset, and no wonder that Mr. Bruce might be willing to walk away from it, if necessary. Another head office is about to bite the dust.

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