New face, same view at SNC

MONTREAL, QUEBEC - SNC-Lavalin Group Inc. chairman Gwyn Morgan of course meant it as a compliment when he praised Jacques Lamarre, the chief executive officer who is stepping down after 13 years, as “a man whom history will record as one of Canada's greatest corporate champions.”

But such unfaint praise only underscores the magnitude of the challenge now facing Pierre Duhaime. Following Mr. Lamarre is not for the milquetoast.

SNC-Lavalin announced that Mr. Duhaime, 54, will succeed Mr. Lamarre as CEO at the Montreal-based engineering giant's May 7 annual meeting. Currently an executive vice-president in charge of SNC-Lavalin's mining and metallurgy division, Mr. Duhaime was chosen from a handful of company insiders, all of whom had spent years being groomed as potential CEOs.

Despite the competition among peers, Mr. Duhaime promised the collegial management approach of the company's 10-man (yes, all men) Office of the President will endure under his leadership.

Such is the corporate culture at SNC-Lavalin, which has emerged under Mr. Lamarre as Quebec's flagship global success story, arguably surpassing Bombardier Inc. in its ability to inspire pride and extend its (nearly) unblemished record of achievement. Extending the search to outside candidates would, in Mr. Lamarre's eyes, have been an avowal of failure.

“The principal quality of a CEO is [the ability] to develop someone to replace him,” Mr. Lamarre, 65, said at a news conference Friday. “It's a small defeat for a CEO if he can't find a successor from inside.”

One insider thought to be a candidate, however, was not even in the running. Mr. Lamarre said consideration of his son Patrick, 37, who runs SNC-Lavalin's nuclear division, would have been “unthinkable.”

“It's better for him,” the elder Mr. Lamarre said. “If his name came up [for CEO] I would have voted against.”

Mr. Lamarre did not elaborate, though he hinted such a move could have been interpreted as favouritism.

Mr. Duhaime, a Quebec City native who has spent two decades with SNC-Lavalin, stayed for a photo op but reserved further comments until he officially takes over. Observers, however, described him as a fitting choice to lead SNC-Lavalin in its quest for more global reach.

“In mining and metallurgy, Pierre really has built a world-class brand that ranks SNC-Lavalin as No. 1 in that kind of engineering,” SNC-Lavalin director Hugh Segal said in an interview. “Having that skill set is really important in taking the company forward and into the next generation in a world that will be at least as demanding, if not more so.”

Mr. Duhaime, who began his career at Noranda Inc. in 1975, has overseen SNC-Lavalin's operations on high-profile projects such as Vale Inco's Goro nickel project in New Caledonia and the Diavik diamond mine in the Northwest Territories. He currently faces a massive challenge, however, in managing a sudden shrinkage in the mining business.

A collapse in the commodities business has sideswiped mining and oil and gas projects worldwide, casting doubt, for instance, on the $4.5-billion (US) Ambatovy nickel project in Madagascar, in which SNC-Lavalin is a minority partner. And SNC-Lavalin's order backlog declined by more than a $1-billion to $9.6-billion in the year to Dec. 31, largely because of a decline in the mining and petroleum sectors.

But Mr. Lamarre countered that government-led infrastructure spending – on everything from roads and bridges to power plants and hospitals – should enable SNC-Lavalin to come through the recession without any interruption in earnings growth.

Few seem to doubt Mr. Duhaime will be able to fulfill that promise – certainly not the board, which increased SNC-Lavalin's quarterly dividend by 25 per cent.

“I would be more worried if the new CEO came from outside,” said Desjardins Securities analyst Pierre Lacroix. “Mr. Lamarre's culture and vision have spread throughout the company. These are people who want to deliver the merchandise. The top line is important for them, but the bottom line is much more important to them.”

SNC-Lavalin reported a fourth-quarter profit rise of 9 per cent to $75-million, while total profit for 2008 more than doubled to $312.5-million on revenue of $7.1-billion. That amounted to a 28.9-per-cent return on equity, compensating for the rare reversal the company experienced in 2007, when it was hit by losses on an Ontario power project. Overall profit declined 3.3 per cent in 2007.

The losses on the Goreway gas-fired power station in Brampton, Ont., confounded analysts who had become unaccustomed to misses under Mr. Lamarre. But it will likely go down as a footnote in an otherwise fairytale tenure that Mr. Morgan, the former CEO of EnCana Corp., described as “visionary, inspirational and highly ethical.”

Mr. Lamarre took the helm in 1996, only five years after the shotgun wedding of SNC Group Inc. and Groupe Lavalin Inc., engineered to save the latter company from collapse. Lavalin had been teetering on the heels of an ill-fated diversification drive led by Mr. Lamarre's older brother Bernard Lamarre. Under the younger Mr. Lamarre, the eighth of 11 children who joined Lavalin in 1967, profit at the merged company grew tenfold and revenue soared fivefold.

Though SNC-Lavalin is currently working on projects in more than 100 countries – and though 30 per cent of its revenue now comes from the Middle East and Africa alone – Mr. Lamarre's dream projects remain closer to home.

Mr. Lamarre has long championed hydroelectric development on the lower Churchill River in Labrador. SNC-Lavalin teamed up with the Ontario and Quebec governments in 2002 to present a joint proposal to the Newfoundland and Labrador government. That deal was rejected by current Premier Danny Williams, whose go-it-alone approach on the $10-billion project has yet to yield results. Newfoundland and Labrador's enmity towards Quebec over the original 1969 Churchill Falls development remains a stumbling block.

“For 30 years, people have been looking at this project. And for 30 years, emotions have prevented this project from being done,” Mr. Lamarre lamented.

However, Mr. Lamarre later told analysts that SNC-Lavalin expects “our share” of contracts from Hydro-Québec's $8-billion Romaine River hydro project, which won approval from Quebec's environmental assessment board.

Mr. Lamarre also made a plea for Canada to remain a player in nuclear energy. SNC-Lavalin is a member of Team Candu, which is partnering with Atomic Energy of Canada Ltd. in bidding for the multibillion-dollar contracts on the expansion and renewal of Ontario's nuclear power fleet. But the Crown corporation faces heated competition from France's Areva and Japanese-owned Westinghouse. Losing the Ontario contracts could doom AECL, or lead to its sale to a foreign player.