Case Study: SNC-LAVALIN GROUP INC.

by Steven L. McShane, University of Newcastle (Australia)

Bribery of foreign public officials, conspiracy to commit fraud and forgery, money laundering,
possessing property obtained by crime, and attempts to secretly smuggle the son of a former
dictator into safer countries. Sounds like the plot of a twisted crime novel. Yet these are the
charges laid against former executives at SNC-Lavalin (SNCL), one of Canada’s largest
engineering and construction firms.

The Royal Canadian Mounted Police allege that over the past decade SNCL funnelled $118
million through offshore bank accounts as bribes to secure contracts in Libya. Separately, the
World Bank, the African Development Bank, Swiss police, and other entities uncovered
evidence that SNCL bribed or attempted to bribe government staff and leaders to win contracts
in Africa and Asia. SNCL is also being investigated for unethical activities in contract bidding on
a major Canadian project involving a Montreal superhospital. Almost a dozen former SNCL
executives, most of whom held senior positions, either face charges of criminal activity or are
under investigation. The company and its 100 subsidiaries have been banned for a decade from
bidding on World Bank–funded contracts.

The World Bank and other investigators report that in several contracts SNCL processed bribes
through an expense line called “project consultancy cost” or PCC. For example, SNCL settled a
corruption case filed by the African Development Bank, which had discovered project
consultancy cost items representing 7.5 percent of the total contract value of two SNCL road
projects in Uganda and Mozambique. The engineering firm has acknowledged that none of these
expenses were legitimate. “Everybody used this term, and all know what that means,” admits
SNCL’s former director of international projects. “Sometimes it was ‘project consultancy cost,’
sometimes ‘project commercial cost,’ but [the] real fact is the intention is [a] bribe.”

SNCL paid many of the PCC bribes indirectly through employees. One SNCL engineer in
Nigeria said he was told to use his personal funds to pay a Nigerian official for a “soils
investigation.” The official had selected the engineering firm for a contract. The engineer was
subsequently reimbursed by SNCL through a fictitious company. When asked why he
participated in the kickback scheme, the engineer (who now works in India for another company)
replied: “When the boss asks, in that part of the world. . .what would you do if you were put in
my shoes if you were in a remote area of Nigeria?”

Another way that SNCL executives apparently bribed officials was through “agent fees.”
Retaining a local agent is common and sometimes required for foreign contracts bids to arrange
permits, imports, and other activities. However, investigators uncovered numerous questionable
transfers of large funds from SNCL to banks in Switzerland, the Bahamas, and other countries,
allegedly for agent fees.

The largest corruption of the “agent fee” process involved SNCL transferring more than $120
million over 10 years to a Swiss bank account controlled by an SNCL executive vice-president
working in North Africa and later at headquarters in Montreal. The executive was subsequently
convicted and served jail time in Switzerland for corruption and money laundering regarding
these funds, $47 million of which he handed over to Swiss authorities as part of that conviction.
During the Swiss trial, the executive admitted that he bribed Saadi Gaddafi, a son of Libya’s
dictator at that time, for the purpose of having SNCL win five major contracts in Libya. In
separate charges, an RCMP affidavit claims that the same executive masterminded a failed
attempt to smuggle Saadi Gaddafi and his family into Mexico. A former SNCL contractor in
Canada spent 18 months in a Mexican prison in relation to that mission.

SNCL is suing the executive convicted in Switzerland and others for recovery of the transferred
funds, claiming that they were intended as legitimate agent fees. The executive counterclaims
that the top brass (below the board level) had arranged or knew these funds were being used for
bribery payments and that the executive was following orders. Separate actions by SNCL’s CEO
at the time lend support to the jailed executive’s claims. Specifically, in spite of opposition from
the chief financial officer and head of international operations, the CEO authorized
undocumented payments totalling $56 million to unknown “agents” in Libya and the Bahamas.
Quebec’s anti-corruption police say the CEO’s largest undocumented payment ($22.5 million
sent to the Bahamas) was a bribe to win a major Montreal superhospital contract. The CEO
resigned when an internal review informed SNCL’s board of the CEO’s actions. The board
granted the CEO a severance payout, but those payments were later stopped when Quebec’s anti-
corruption police charged the former CEO with fraud.

Another SNCL vice-president now facing several charges also admits to engaging in bribery and
related crimes. He explained that SNC-Lavalin had “a corporate culture where it was common
practice to do all that was necessary, including the payment of ‘commissions’ and other benefits
to obtain contracts, including in Libya.” The second executive also argued that he was under
pressure to engage in these illegal activities because the executive above him said “that he had to
follow their orders to satisfy their expectations.” In fact, a few former SNCL executives have
since tried to sue the company for wrongful dismissal on the grounds that their illegal activities
were required by the company to keep their jobs.

SNCL’s board of directors seems to have downplayed personal responsibility for these events.
Very early in the RCMP investigation, SNCL’s board received an anonymous internal letter
describing the bribery activities, yet the board later admitted that it only “took note” of the
allegations, pointing out that they have “received anonymous letters before that have no
credibility.” And when the extent of wrongdoing at SNCL eventually became public, the board
chair said: “Clearly, our board of directors can’t govern something that they don’t know about,
or prevent something they are not aware of.”
Discussion Questions

1. Explain how moral sensitivity and moral intensity apply to the unethical behaviour
among several SNC-Lavalin executives and other staff. (Suresh and Basim)

Workplace ethics in simple terms relate to how an organization governs its employees and
out-of-work interactions,business relationships with their suppliers and strategic partners with
utmost dignity. With respect to SNCL, its Moral sensitivity and intensity took a toll on almost
everyone in the management team. It’s a bit surprising that the people who were supposed to be
responsible for keeping things aligned as per the compliance policies chose to act as per the
influence of various “situational factors”. A certain set of rules which needs to be followed by
both employees and employers were not abided. The case study is a crucial example of the fact
that all employees can be under the part of “organizational pressure” such as unrealistic
deadlines and are forced to do unethical work (McShane et al., 2021, p.54). All the employees of
the organization had no “mindful thoughts”. until the scandal was revealed they chose to
continue to complete the task unethically abiding to the stipulated time. At the same time, some
of the employees confessed the things which were not legit inside SNCL, out of pressure,
criticism, and various reasons which may seem that few employees were sensitive to moral
values. As per our view, SNCL employees were subjected to high-level top management
influence as well as to a certain extent of personal greediness because at any moment they could
have chosen to quit owing to the SNCL Values and crooked practices. Which shows that there
were no room for “Moral Sensitivity and intensity” and none of the employees did their job
ethically.Moving forward the same can be eradicated by mandating vehement practices and
values right from the day of enrollment into the company and considering the long-term growth
of the company management revamp is necessary to bring SNCL back on track.

2. This case describes several incidents of unethical and illegal behaviour at SNC-Lavalin.
To what extent did motivation, ability, role perceptions, and situation (i.e., MARS model
from Chapter 1) influence this behaviour among executives and employees? How did the
personal values of these people affect their actions? (Kiran, Such, Shubh)

A person’s performance is a combination of the individual characteristics and the situation which
impacts the individual behavior. The MARS model suggests 4 factors (acronymed as MARS)
that directly influence employees’ behaviour and hence their performance. MARS describes the
effect of Motivation, Ability, Role Perception and Situation in employee behaviour (McShane et
al., 2021). MARS model explains how internal and external factors influence individual behavior
and hence performance outcome. If any of these factors are low or distracted, the individual may
certainly perform poorly.
Below we examine examples of unethical or illegal behaviour by SNCL employees by viewing
their behavior relating to each of the four factors from the MARS model.

Motivation
Motivation refers to the force with which a person carries out a particular behavior in a certain
direction, intensity and with persistent effort. According to the report, the firm promoted illegal
transactions whenever required to secure a contract. Employees willing to participate in kickback
schemes and bribery were lauded and given higher positions. There was positive reinforcement
provided by higher company officials including the CEO and board of directors encouraging
employees to work against their moral code. Report also states that SNCL fired employees
wrongfully who went against the companies ‘do whatever required’ policy. Another evident
instance of motivating illegal activities if when the board decided to pay a severance package to
an ex CEO who authorized undocumented payments and had to resign after these were brought
to light.

Ability
Ability refers to how able the employees are to successfully complete a task. An employee
becomes able with a combination of natural aptitude and learned capabilities. SNCL had very
little regard for company ethics and individual code of conduct of employees. SNCL expected
their employees to engage in illegal activities. Ability to bribe people and governments, and a
lack of moral values were desirable characteristics SNCL looked for in its employees. As stated
by a former employee, his boss had informed him that to satisfy the expectations of the company,
he had to engage in unfair practices. Ultimately SNCL aimed to not only look for people who are
okay with unethical practices but also tried to make them learn, implement and support unethical
behavior.

Role Perceptions
Role perceptions refer to how well and clear is any job understood by the employees. SNCL as a
company is said to have developed a corporate culture of doing ‘all that was necessary’ to secure
contracts as stated by a former vice president. The ideal employee role portrayed by the company
was someone who would not hesitate to deviate from his moral values or engage in illicit
activities for the company. SNCL encouraged employees to behave unethically for mere
financial gains many times putting the life and career of the employee at risk. SNCL also faces
charges of wrongful dismissal of employees who don't follow foot with their unfair intentions.
Employees were forced to resort to illegal activities to keep their job; this put them under
pressure.
Situational factors
Situational factors refer to the external circumstances that are outside employee’s control. The
conduct of employees at the infamous SNCL, we can see that in many cases, it was the situation
that made the employees engage in unethical behaviour. Consider for example the instance of the
SNCL engineer in Nigeria who was ‘forced’ by his boss to transfer personal funds as a bribe to
secure contracts in the country. The employee later attributes his behaviour to situational factors
like being in foreign lands and not knowing what to do. Though the employee was fully aware
and guilty of his actions, his boss had ‘asked’ him to carry out the transaction. He was afraid that
his job was at stake. Employees have reported being put under pressure to pay out bribes for
keeping their jobs and getting higher positions in the company. The environment that the
organization has developed with executives in notable positions who are responsible in setting
the tone at the top performing and asking to perform unethical acts in itself is a bad influence on
the employees, representing how situations impact individuals. These served as cues to
employees to not deter from unethical behavior.

Two types of behaviors were significant in the employees’ behavior in the company, namely:
Counterproductive behavior and organisational citizenship. The top-level managers were highly
driven by money and promotional opportunities irrespective of the ways in which they
performed their job. They were willing to perform unethical and illegal activities undermining
the goals and goals and interests of business and stakeholders at large, in the long run. Likewise,
executives worked together for the same objectives never minding about the negative tactics and
consequences it would bring about, however worked hard to maintain a positive image for the
organization.

Personal values of managers and executives, I believe, played an important role in the execution
of such criminal acts as bribery. Employees admitting that their business practices were unethical
and unreasonable demonstrates that they had moral intensity and sensitivity. The degree to which
a situation necessitates the application of ethical principles is referred to as moral intensity. The
greater the moral intensity, the more carefully the professional executive or decision maker must
apply ethical standards to make the optimum choice (McShane et al., 2021, p.46). Making
decisions under constraint or pressure, on the other hand, leads to erroneous practices and
activities. Furthermore, moral sensitivity refers to a person's ability to recognize and assess a
moral challenge. It is a personality trait of the decision maker, not a facet of the event (McShane
et al., 2021, p.46). However, since the corporation had made unethical bribing tactics a culture
within the organization, it might be claimed that moral sensitivity in the employees would have
dropped considerably. Employees may have begun to accept immoral practices such as bribery
as a necessary part of their jobs, contributing to the steady development of moral insensitivity.
3. What steps should SNC-Lavalin and other companies in this situation take to minimize
these types of corporate wrongdoing? (Aish, Chahat, Rajesh)

The measures that SNC-Lavalin (SNCL) and other companies should undertake to mitigate
corporate malpractices are as follows:

● It is apparent from the case study that many top executives of SNCL have exhibited some
of the dark triad personalities (McShane et al., 2021, p.39) by engaging in white-collar
crimes. It is necessary to deploy rigorous anti-corruption compliance codes, policies, and
procedures to detect and deter violations of anti-corruption laws by the company's
personnel.

● When senior management is involved in such serious offenses, it is required to revamp

the top management, and the new administration should ensure that they exhibit high
moral standards. They should set a new code of business conduct and ethics that the
employees' should strictly adhere to and follow.

● Companies should appoint a high ranking chief ethics and compliance officer (CECO),
directly reporting to the Board committee with input from day to day supervisors such as
CEO or General counsel.

● The companies should encourage the employees to take up annual certifications of the
company's anti-corruption compliance codes, systems, and procedures. Such periodic
reviews and testing would improve the employees' effectiveness.

● In one scenario from the case study, the boss instructed a junior employee to transfer
funds as bribes to Nigerian officials, which depicts power distance (McShane et al., 2021,
p.50). There should be a confidential reporting system of illegal activities to the
organization in such cases. This system would enable the management to investigate the
allegation and take necessary measures against those offenders. The administration
should protect the employee in case of any retaliation.

● Companies should design a series of steps to effectively discipline employees to stop

them from engaging in unethical activities. The human resource management team can
use the following steps for disciplinary action.
1. Oral Reprimand
2. Written Warning
3. Final Documentation
4. Suspension with Probation
5. Termination
 ● Companies should hire external accountants to audit the financial records regularly to
ensure all incoming or outgoing funds are legal and legitimate. The auditors should report
the transaction for further investigation and possible retribution in case of any
discrepancies.

● Using due care in Hiring C-Suite Executive, companies should evaluate the ethical
background of the executive being appointed or new candidates while hiring them. The
hiring officials should question the candidates on specific scenarios to test their moral
standards and beliefs.

● It is also essential to reward employees who exhibit moral behavior to motivate other
employees to follow ethical practices.

Reference

McShane, S.L., Tasa, K., & Steen, S. L., Canadian Organizational Behaviour (11th Cdn ed.)
New York, NY. McGraw Hill Publishers.