For SNC’s hard-hit investors, what’s ahead for the company may lie in the past

  Jul 6, 2012 – 8:33 PM ET Last Updated: Jul 9, 2012 8:21 AM ET

John Mahoney/Postmedia News

John Mahoney/Postmedia News

The engineering giant shocked the market in the early spring when it said it had begun an internal review into what happened to $56-million of unexplained payments to commercial agents for its international work. The disclosure came just weeks after it parted ways with two key executives, Riadh Ben Aissa and Stéphane Roy, who are now at the centre of the alleged wrongdoing.

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Avon, the U.S. retailing icon, is cherished the world over for its body pampering products like Haiku Sunset perfume and Skin-so-Soft moisturizer. But investors of the globe’s biggest direct seller of cosmetics were delivered a decidedly hard blow in the fall of 2008 when the company disclosed allegations that some of its top executives bribed local officials in China, violating the U.S. Foreign Corrupt Practices Act.

Over the following six months, Avon shares tanked. The company launched an internal probe and suspended four executives including its global head of internal audit in New York.

“[The company] was pretty beaten up when we got into it,” said Shawn Gault, vice-president at Kempner Capital Management in Galveston, Tex., a deep-value investor which owns Avon shares as part of some US$444-million under management.

Shareholders subsequently filed suit against the board for failing to prevent improper payments. The probe found evidence that company officials were also doing bribes in other countries. The Securities and Exchange Commission initiated its own investigation while the company launched a strategic review.

Fundamentals in the end prevail . . . the reason why they win contracts and are invited on bids is because of their scale, because of their expertise

It’s enough to create a monster blemish on any company’s corporate face. But what happened at Avon may be particularly instructive for what lies ahead at SNC-Lavalin Inc. as Canada’s largest engineering company steers through its own ethics crisis — one that destroyed one-third of its market capitalization at its peak and has left its reputation reeling.


SNC investors burned by recent events are torn: they could add to their positions and risk further damage; or they could do nothing and miss out on a general improvement in the company’s operating fundamentals, says Desjardins Capital Markets analyst Pierre Lacroix. For some, there just isn’t enough clarity about what’s coming next to justify buying in. For others, even if SNC falls into a worst-case scenario of losing its business in every market outside North America and Europe and is forced to pay hefty fines and lawsuit settlements, the company is a worthy place to put your money.

For more clarity on what the future may hold, Mr. Lacroix suggests turning to the past.