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LafargeHolcim CEO latest victim of non-compliance

Paul Hodgson | April 24, 2017

Monday saw the latest CEO victim of non-compliance with a company’s own code of conduct—Eric Olsen, CEO of LafargeHolcim, who will resign on 15 July this year, only two years after his appointment to oversee the merger of Lafarge and Holcim. The conclusion of the company’s enquiry into the conduct of its Syrian subsidiary between 2010 and September 2014, when the plant closed, was announced on the same day. Despite his decision to resign, taken to address “strong tensions that have recently arisen around the Syria case”, the accompanying press release notes that: “Following an in-depth review, the Board has concluded that Eric Olsen was not responsible for, nor thought to be aware of, any wrongdoings that have been identified as part of its review.”

The company does not appear to have a successor for Olsen and has announced a search process. In July, when Olsen leaves, Beat Hess, board chair, will become interim CEO and Roland Köhler, currently in charge of Europe, Australia/New Zealand and Trading, will be appointed COO.

Not having a succession plan in place is one of LafargeHolcim’s board’s failures, and one that it fails to acknowledge, as it does not acknowledge its other major failure. Failure to comply with, or to ensure compliance with, codes of conduct is the responsibility of line management and that responsibility stops at the top. But the other “top” of the company is the board and its independent directors, and their failure to identify the Syrian situation is not even addressed in the summary findings of the enquiry.

My decision is driven by my conviction that it will contribute to addressing strong tensions that have recently arisen around the Syria case. While I was absolutely not involved in, nor even aware of, any wrongdoing I believe my departure will contribute to bringing back serenity to a company that has been exposed for months on this case.

Eric Olsen, LafargeHolcim CEO

Initial findings of the internal investigation were announced on 2 March this year. The latest conclusions put flesh on the bones of those as well as on the remedial measures that the company is proposing. The investigation was carried out by independent external counsel and appears to have followed a classic pattern, involving, among other things, “extensive procedures to preserve documents, identification of personnel involved, in-depth review of electronic data, and substantive interviews of company employees and executives, including senior managers responsible for Syrian operations.” These procedures uncovered the fact that Lafarge’s existing compliance programme failed to prevent these breaches of the code of conduct. The review uncovered several contributing factors, including:

  • insufficient independence of the Internal Control function from line operations
  • circumvention of the internal certification procedures
  • the inability to conduct a field audit due to the security situation

Compliance weaknesses and remedial measures

The weaknesses in the compliance program and controls that were identified in the investigation have been assessed against LafargeHolcim’s current compliance program to ensure that they are now corrected:

  1. Improper payments related to LCS’s security and supply chain;
  2. Failure of line management to object to the conduct or the payments referenced above, notwithstanding red flags;
  3. Inadequate controls over individual expenses, discounts, and financial disbursements from LCS;
  4. Inadequate review and oversight of third parties and joint venture partners engaged by LCS; and
  5. Failure to detect and properly escalate improper payments made, and improperly recorded, in company accounts, or identify the same through group audit.

To the extent not already adequately addressed under the current compliance program, LafargeHolcim is examining its policies, protocols, and related financial controls to ensure that misconduct identified can be better detected and/or prevented all together. These measures include the following:

  1. Improved Compliance Communications;
  2. Comprehensive Sanctions Policies and Procedures;
  3. Adoption Country-Specific Risk Assessments;
  4. Enhanced Restricted Party Screening;
  5. Establishment of the Ethics, Integrity, and Risk Committee.

Source: Summary Findings

The conclusion of the review is that “a number of measures taken to continue safe operations at the Syrian plant were unacceptable, and significant errors of judgement were made that contravened the applicable code of conduct.” The findings also disclosed that selected members of Group management “were aware of circumstances indicating that violations of Lafarge’s established standards of business conduct had taken place.” No announcements have been made about the continued employment of these employees, though this is likely due to legal action. Criminal complaints have been filed in France, and these are conducted under a rule of secrecy; since Lafarge has not been made a party to any of them, it cannot comment.

But compliance with internal standards also prevents the company from any immediate actions regarding these employees. Any disciplinary actions for the relevant employees will only be announced after they have been given an opportunity to be heard and “upon consideration of the factors specified in LafargeHolcim’s Group Compliance Committee charter.”

As was previously announced, remedial measures include the setting up of an ethics, integrity & risk committee, which will be responsible for “overseeing the rigorous implementation which will strengthen and enhance Group-wide compliance.” This committee will be co-chaired by the executive committee member responsible for organization and human resources and the chief legal and compliance officer. It reports to the board’s finance and audit committee (FAC), which means that it is a second-tier committee, not a first tier like the FAC. Given the company’s troubles, it might have made sense for the board to make this new committee a first tier.

The release announcing the remedial actions notes that there have already been significant changes and developments in the company’s compliance programme since 2014 and that these will continue. Indeed, further revisions to the compliance structure are already underway, but these will not affect direct access for the head of compliance to the FAC and the CEO.

The Board has further instructed that there can be no compromise with compliance nor with adherence to the standards reflected in the LafargeHolcim Code of Conduct without regard to operational challenges.

LafargeHolcim board

Despite the timing of the announcement, the release also says that the board has mandated Olsen to implement these remedial measures. With only three months left, it will be up to his successor to make sure they stick. But, more importantly, LafargeHolcim’s shareholders should be mandating their representatives—the independent directors—to implement some remedial measures for themselves to ensure that they do not allow such a situation to go unnoticed again.